Maybank Securities analyst Jarick Seet has upgraded Food Empire to “buy” as he sees that the company is on a “firm track back to profitability growth” based on its FY2024 reslts. The analyst last downgraded Food Empire to “hold” in August 2024 amid “headwinds” at the time.
Seet’s latest report comes two days after Food Empire reported a new record revenue of US$476.3 million ($642.5 million) for the FY2024 ended Dec 31, 2024. While FY2024 revenue stood 11.9% higher y-o-y, gross profit only rose by 2.1% y-o-y to US$144.4 million as cost of sales rose.
Earnings for the year fell by 7% y-o-y to US$52.8 million due to the record high coffee prices during the year and higher expenses on the whole. Excluding the fair value gain on redeemable exchangeable notes of US$2.8 million, Food Empire’s normalised net profit after tax declined 11.4% y-o-y to US$50.0 million in FY2024, which stood within Seet’s estimates.
In his report dated Feb 27, the analyst notes that Vietnam was Food Empire’s fastest-growing market, with its revenue contributing over 50% to the company’s overall Southeast Asian revenue in FY2024.
In addition, Food Empire’s manufacturing facilities in India for freeze-dried and spray-dried soluble coffee are running at close to full capacity. During the year, the company saw higher revenue from increased sales of instant coffee products and price adjustments to reflect the higher cost of coffee beans.
“Management sees stronger growth from Asia and has put in place various commercial and strategic initiatives to tap opportunities around the region. To sustain the strong growth in Vietnam, it will continue to invest in strengthening its brand presence and increasing the rate of consumer acquisition,” Seet writes.
See also: Hong Leong Asia targets JS-SEZ growth and China recovery
Furthermore, Food Empire has invested in new production facilities in Asia such as the construction of a new coffee-mix production facility in Kazakhstan and a freeze-dried soluble coffee manufacturing facility in Vietnam. The facility in Kazakhstan is scheduled to begin at the end of 2025 while the Vietnamese facility is expected to be completed by 2028.
Looking ahead, the analyst says he expects Food Empire’s margins to improve as adjustments to the company’s price increases kick in.
“The situation with its Russian distributer has also been resolved and we expect margins in Russia to improve gradually in FY2025. Growth in Vietnam is also expected to continue,” he adds.
See also: Centurion Corp sees growth from strong construction demand
With a better outlook Seet has increased his patmi estimates for FY2025 and FY2026 by 11% respectively. His target price has also been raised to $1.19 from $1.02 previously, based on an FY2025 P/E multiple of 8 times.
For the year, Food Empire has proposed a total dividend of 8 cents per share, representing a payout ratio of 61.5%. This year’s dividend comprises a first and final dividend of 6 cents per share and a special dividend of 2 cents per share. In comparison, however, the company paid out a total dividend of 10 cents per share in FY2023, which was made up of a first and final dividend of 5 cents per share and a special dividend of 5 cents.
Moving forward, Seet believes management will likely continue to reward shareholders with attractive dividends.
CGSI ups target price to $1.71
CGS International analyst William Tng has kept his “add” call on Food Empire as the company’s FY2024 revenue came 5.7% above his forecast and in line with the estimates of the consensus.
Food Empire’s core net profit stood 7.9% higher than Tng’s forecast and 7% above the consensus’ estimates thanks to better profit margins.
Like Seet, Tng notes management’s “clear growth plan”, which was clearly articulated for the next three years.
For more stories about where money flows, click here for Capital Section
In addition to Food Empire’s new facilities in Kazakhstan and Vietnam, the analyst also highlights the company’s plans to strengthen its brand presence in Vietnam and in Malaysia.
“Food Empire expects a newly added creamer manufacturing facility (completed in 2Q2024) to hit full utilisation over the next two to three years. It also expects the expansion of the snack manufacturing facility in Malaysia to be completed by 1QFY2025 with commercial production targeted by 2QFY2025,” he writes in his Feb 27 report.
As the analyst expects higher contributions from Food Empire’s Vietnam and food ingredients manufacturing businesses, he has increased his revenue forecasts for FY2025 to FY2026 by 5.7% each. His earnings per share (EPS) forecasts have also been raised by 9.8% and 11.2% for FY2025 and FY2026 respectively.
Accordingly, Tng’s target price is also raised to $1.71 from $1.53 previously. The new target price is based on an unchanged 11.2 times P/E multiple and 1.0 standard deviation (s.d.) above its five-year mean, from 2019 to 2023.
Shares in Food Empire closed 3 cents higher or 2.7% up at $1.14 on Feb 28.
