|
Food Empire rose 3 cents to close at 68.5 cents today following an initiation of coverage report by UOB Kay Hian. This report is the 3rd following an analyst-cum-investor visit to Ho Chi Minh City to check out Food Empire's Vietnam operations. The first 2 were: 1. FOOD EMPIRE: Our visit to Ho Chi Minh City to check out its ops |
Excerpts from UOB Kay Hian report
Analysts: Joohijit Kaur & Clement Ho
| Huge Bargain For Instant Coffee Player With Global Footprint Food Empire is a dominant instant coffee player in CIS countries. Following the collapse of the Russian ruble in 2014, the group has successfully diversified its sales through deepening its penetration in emerging markets.
Trading at 9.2x 2020F PE vs >20x for its regional peers, valuation is due for re-rating. Initate coverage with BUY and target price of S$0.89. |
||||
• Instant coffee market leader in CIS countries with successful diversification efforts. Food Empire Holdings’ flagship brand, MacCoffee, is the leading 3-in-1 instant coffee brand in Commonwealth Independent States (CIS) countries. 
With its strong brand equity and broad network of distributors, it commands the largest share of Russia’s instant coffee market.
Sales contribution from Russia was about 60% prior to the ruble’s collapse but has since fallen to 40%, mainly due to the group’s geographic expansion into regions such as Vietnam and its diversification efforts into the upstream business.
Going forward, we expect Food Empire’s more mature markets to see stable mid to high single-digit revenue growth and its emerging markets to clock meaningful growth in the low-teen range.
• Successful entry into Vietnam. Food Empire has gained entry into Vietnam through its iced coffee product, Café Pho, which was launched in 2013. 
Cafe Pho is sold in sachets mainly in provision shops of Vietnam. NextInsight file photoCafé Pho is among the top 5 leading brands by volume share and a top 3 player based on value share in the Vietnam 3-in-1 instant coffee market.
Revenue from Indochina, which includes Vietnam, grew nearly fivefold from US$10.5m in 2014 to US$50.4m in 2018.
The Vietnam business contributes close to 18% of top-line, making it Food Empire’s second-largest market and its stronghold in Asia.
We believe Food Empire will be able to continue to gain market share through the introduction of new products, leveraging on its extensive network of distributors and sales representatives in Vietnam.
• Strengthening margin from cost rationalisation. Efforts to streamline operations andthe exit of its loss-making Myanmar business improved 9M19 net margin by 2.6ppt to9.8%.
The group is set to have pulled off a record year in 2019 (highest level of reported net profit), underpinned by stable revenue growth and margin expansion.
With management’s focus on key markets and less drag from underperforming markets, margin should continue to trend upwards. We forecast 2019-21 net profit CAGR of 9.4%.
| • Attractive valuation; expect upward re-rating. We initiate coverage with BUY and atarget price of S$0.89, pegged to its long-term average PE (excluding outliers) of 12.5x. We believe the current 9.2x 2020F PE for the group vs > 20x for its regional peers may be due to the lack of street coverage, and visibility should improve given its: a) higher core earnings base, b) reduced geographical dependency, and c) operational leverage which is at the tipping point. |
Full report here
