Tng estimates that labour and packaging forms around 30% of Food Empire's cost of goods sold.
He believes that despite fears over higher input costs, Food Empire has over the years built up strong branding to support its efforts to grow its own-brand products.
Tng estimates that the company will report 1HFY2026 revenue of US$303.7 million, an increase of 10.8% y-o-y, and up 0.3% h-o-h, as well as net profit of $34.9 million, up 10.6% y-o-y, but down 6% h-o-h.
He expects the company to maintain an interim dividend of 3 cents as well.
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Now, to reflect a larger share base from a recent 1 for 5 bonus issue, Tng has cut his FY2026 EPS by 16.7% and FY2028's by 16.8%.
He has kept his 9-13% core EPS growth over FY2027 to FY2028, and by applying the same 20.5x FY2027 earnings valuation multiple, derived a lower target price of $3.33.
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Tng notes that at this valuation, Food Empire has been accorded a 1.4.5% premium to its international peers' 17.9x 2027 sector average.
He justifies the higher valuation to Food Empire's better 3-year EPS CAGR and 4.8% dividend yield.
Potential re-rating catalysts include improving operating margins on stabilising market demand; sustained market share in its key market of Russia, which accounts for nearly a third of revenue; resolution of the Russia-Ukraine conflict.
On the other hand, downside risks include escalation in Russia-Ukraine conflict, affecting its Russian operations, and depreciation of the ruble versus the US dollar, leading to lower revenue in US$ terms, which is Food Empire's reporting currency.
Food Empire shares traded at $2.46 as at 2.14 pm, down 2.77%.
