William Tng of CGS International had on June 26 raised his target price to $2.28 from $1.95; Maybank Securities had earlier raised its target price to $2 from $1.19.
In his July 17 note, Cheong says he expects the company to achieve core earnings growth from ongoing investments in brand building as well as the market leadership positions of its brands.
The company's 3-in-1 coffee now commands the largest market share in Russia and Kazakhstan, and is also a top three player in Vietnam.
The way Cheong sees it, Food Empire's focus on Asia allows it to capitalise on high-growth emerging markets that have shown an increasing preference for good quality instant beverages that provide convenience and cater to busy lifestyles.
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In addition, the company is seen to benefit from tailwinds of falling coffee prices and a strengthening Russia ruble.
Cheong believes that demand will be further supported by younger consumers who like the convenience and affordability of instant coffee over traditional brewed coffee.
"Affordability is becoming a more crucial push factor with the recent increase in coffee bean costs," he reasons.
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In recent years, Food Empire has put in place significant investments to increase its production capacity by around 50% this year onwards.
Also, the company is still investing in brand-building activities in its key market Vietnam, so as to keep up the growth momentum and further entrench its position as a market leader in the instant coffee-mix space.
Separately, the company has signed a supplemental agreement of its US$40 million redeemable equity note from investor Ikhlas Capital.
Under this latest agreement, the conversion price will be at $1.09 which will eliminate the need to mark the REN at fair value which will cause earnings volatility from 3Q25 onwards.
As the new agreement only takes effect from 1 Jul 25, Cheong estimates that Food Empire will have to recognise a one-off fair value loss of around US$20 million in 1H25.
"We believe that a negative share price reaction because of the fair value loss should be a good buying opportunity due to non-recurring nature of this event," he says.
Cheong's new target price of $2.40, from $1.98, is pegged to 17x FY2026 earnings, a higher valuation multiple versus 15x FY2025 previously.
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Even so, this is still at a 30% discount vs the FY2026 PE multiple of Food Empire's regional peers of 24x.
"We believe Food Empire should continue to re-rate upwards because of its improving track record in delivering robust results and absence of rising tensions in Russia and Ukraine, two key segments of Food Empire.
"We opine that Food Empire will continue to see business growth as it successfully passes on pricing adjustments and embarks on strategic expansions with its strong brand equity," says Cheong.
Food Empire shares changed hands at $2.05 as at 10.59 am, up 1.99%.
