Demand likely remained strong in its core markets and in Vietnam, and margins should continue to expand as raw material prices have stabilized, they say.
Seet and Ong expect Food Empire to continue its marketing efforts in Vietnam and to further grow revenue, while its India plants will also continue to perform well as end demand remains strong.
With this in mind, the analysts expect management to continue rewarding shareholders with attractive dividends, potentially more than last year resulting in a prospective yield of 3.9% for FY2023.
They also see potential for a special dividend due to its strong profitability and cash flow generation, which may see FY2023 yield well above their projected 3.9%.
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In addition, Seet and Ong are confident in Food Empire’s management execution capabilities, noting that they have a strong track record.
Further share buybacks would support the stock price, as valuations remind undemanding, they add.
Some upside factors that the analysts have highlighted include the end of the Russia-Ukraine war; continued strong growth in other markets and revenue diversification away from Russia; and an attractive takeover target by bigger F&B players or private equity funds.
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However, they note potential downsides, including the escalation of the Russian war; higher raw material prices and Ruble depreciation are negative for earnings; and new competitors entering the market might temporarily dilute its market share.
“As a result, we maintain buy with an unchanged target price of $1.60, pegged to 12 times FY2023 P/E,” they say.
As at 11.50am, shares in Food Empire are trading 0.2 cents higher or 1.408% up at $1.44.
