Better known for selling coffee in Russia and other former Soviet Republics, Food Empire has built Vietnam as a new key market with strong growth and volume.
“We think investors have yet to get a good grip on the earnings potential of Food Empire as efforts to build on the growth momentum in Vietnam for its branded business is in progress,” states Tng in his June 26 note, where he kept his “add” call but with a higher target price of $2.28 from $1.95.
Vietnam has emerged as the company’s fastest-growing market, with revenue from its branded beverage business up 46% y-o-y in 1QFY2025, driven by a larger sales force, better marketing and reinforcing brand loyalty.
Another underappreciated growth driver, in Tng’s view, is Food Empire’s food ingredients manufacturing business. The expanded manufacturing facility in Johor will start production should in 3QFY2025. Its non-dairy creamer plant, also in Johor, is also seeing an increase in capacity and utilisation rate.
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In Kazakhstan, the company is building its first three-in-one coffee-mix manufacturing facility, which will be completed by the end of FY2025. Tng says the new facility will boost Food Empire’s total coffee-mix production capacity by around 14%–15%, enabling it to grow its reach in Central Asia.
This plant, which can add an annual production capacity of 850 million sachets, is on top of the company’s existing combined capacity of six billion sachets from its plants in Russia, Ukraine, Malaysia and Vietnam.
According to Tng, Food Empire’s management expects a 10% net profit margin as a “reasonable” target, considering higher operating costs and depreciation.
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Last September, the company also announced it would invest US$80 million in building a new Vietnam freeze-dried soluble coffee manufacturing facility by early 2028.
Tng figures that at full utilisation, this new plant could generate revenue of US$40 million ($51 million) to US$60 million per year from FY2028 to FY2030.
Given the company’s “supportive” fundamentals, Tng has raised his target valuation multiple from 11.2 times FY2026 earnings to 14.2 times FY2026 earnings, two standard deviations above its nine-year average, leading to the higher target price of $2.28.
Even at 14.2 times, Tng says that Food Empire is still trading at a 10.7% discount to the global sector average of 15.9 times P/E, which may reflect a valuation discount for its business in the Russia-Ukraine region, which has a low probability of suffering from risks of the ongoing fight.
Tng sees another “non-fundamental” re-rating catalyst. With a market cap of US$734 million and a three-month average daily traded value of US$0.8 million, Food Empire will be a “potential investible candidate” when the $5 billion market fund from the Monetary Authority of Singapore is deployed. “The additional demand boost would help raise Food Empire’s valuation, in our view,” says Tng.
In addition, Ikhlas Capital, an investor in the company through an issue of US$40 million worth of redeemable exchangeable notes (REN), could lead to a potential secondary listing in Malaysia or Hong Kong, which could improve valuation, says Tng.
Food Empire, having last announced a one-for-five bonus issue back in 2002, can consider another issue to reward shareholders, adds Tng.
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Beyond the medium term, with the new contribution from new facilities in Vietnam coming on stream in FY2028, there is potential for Food Empire’s share price to reach $2.60 to $2.95, says Tng.
On July 1, Tng maintained his call and target price even after Food Empire entered into a second supplement agreement to address certain aspects of its REN with Ikhlas Capital.
Under the new agreement, Food Empire will seek to eliminate a potential revaluation gain or loss through an accounting classification known as “fixed-for-fixed”.
The new agreement will eliminate the non-cash impact on Food Empire’s reported earnings arising from fair value gains or losses due to the share exchange feature in the REN.
Pending the valuer’s report and the final review by Food Empire’s management and board, Food Empire has guided that it may report a fair value loss in its 1HFY2025 results. This is due to the “significant increase” in its share price above the exchange price from Jan 1 to the date of the signing of the supplemental agreement.
Tng estimates the loss to be around US$20 million, which is accounting in nature and would have no impact on Food Empire’s cash flow and actual earnings power.
