While the consumer F&B business made up some 94.5% in revenue for its 1HFY2025, Yeo’s also has a business segment focused on investment property and development.
On this, analyst Ng Xin Yang writes in his Feb 10 report: “While contributing minimally to revenue, it is a key earnings stabiliser and valuation anchor. In the 1HFY2025, the segment generated $10.2 million of segment profit, effectively offsetting $7.4 million losses in the core F&B business.”
Following the “unwind” of low-return co-packing exposure, Ng notes that the company is transitioning from volume-led manufacturing toward a brand-led portfolio to improve its mix and margins.
He writes: “While this strategic reset should improve product quality over time, near-term results remain pressured by lower utilisation and competitive pricing dynamics, keeping core profitability weak.”
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In the FY2024 ended Dec 31, 2024, Yeo’s revenue declined 1.2% y-o-y to $328.6 million as volumes in co-packing and agency reduced, while the company’s core F&B revenue grew modestly. Its gross margin to 33.2% in the period, before softening to 31.4% in the 1HFY2025 on negative operating leverage.
The softening was due to Yeo's strategic cessation of its co-packing partnership in Singapore with dairy-alternative producer Oatly. Although the move resulted in a $5.6 million revenue decline in the 1HFY2025, Ng notes that this allows management to reallocate resources toward higher value-add production.
Following the cessation of its partnership with Oatly, Yeo’s has acquired a 5.3% strategic stake in Vitasoy to hedge exposure in the Greater China plant-based market.
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Ng writes: “Reported earnings remain supported by non-operating items, reinforcing that the reset is not yet fully reflected in sustainable operating returns.”
The analyst also notes that Yeo’s maintains a “conservatively” capitalised balance sheet, supported by substantial cash and liquid financial assets of around $200 million which provide valuation support and optionality for capital actions.
The stock presently has “depressed” operating earnings as Ng puts, due to its headline price-to-earnings ratio (P/E) being inflated by a low earnings base while being “anchored” by an income floor of an around 3.3% dividend yield and balance-sheet backing.
With this, he writes: “We expect meaningful re-rating to require clearer evidence of operating normalisation—utilisation and margin recovery, alongside reduced reliance on non-operating gains. Until then, the group is better characterised as a dividend-supported, asset-backed return profile rather than a near-term growth compounder.”
One potential catalyst for the stock is Yeo’s 5.3% stake in Vitasoy, which Ng notes is “positioned as a strategic stake rather than a passive holding” and provides exposure to Vitasoy’s improving earnings profile. In the FY2025, Vitasoy reported a 102% y-o-y net profit growth.
“With complementary geographic strengths—Vitasoy in Greater China and Yeo’s in Malaysia/Singapore. This stake creates optionality for commercial collaboration and positions Yeo’s as a relevant participant in any sector consolidation within Asian plant-based beverages,” writes the analyst.
Another catalyst is Yeo’s prioritising of higher-margin products, innovation and productivity gains.
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Ng writes: “Replacing lost co-packing volumes or accelerating proprietary throughput is critical to improving utilisation and reversing gross margin compression. Greater China remains challenging, with ongoing stock keeping unit (SKU) rationalisation likely to weigh on near-term topline, though optimisation and productivity initiatives could support margins over time.”
Foreign exchange (forex) meanwhile poses a risk to Yeo’s, as the company reports in Singapore dollars but derives most of the revenue from the Malaysian ringgit (RM) and the Chinese renminbi (RMB).
“The persistent strength of the Singapore dollar against regional currencies creates a structural translation drag on reported top-line growth and asset values. With about 63% of revenue from emerging markets, a strong Singapore dollar resulted in a $1.5 million translation loss in the 1HFY2025,” writes Ng.
Other risks to Yeo’s F&B business include fluctuations in soy and sugar prices, structural deceleration in the Chinese economy, persistently weak consumer sentiment and any deterioration in Vitasoy’s share price which would directly impact Yeo's revalued net asset value (NAV) and shareholder equity.
Ng adds that the investment case for Yeo’s is anchored by its deep discount to NAV, which is largely derived from its land and investment properties valued at $60.7 million.
He concludes: “While Yeo’s is not a residential developer, strict government cooling measures and land-use policies in Singapore can suppress broader property valuations, potentially lowering the realisable value of Yeo’s legacy land assets in a liquidation or privatisation scenario.”
As at 11.09 am, shares in Yeo Hiap Seng are trading flat at 61.5 cents.
