At its current levels, RHB's Jarick Seet believes the counter is a “steal".
RHB Group Research analyst Jarick Seet has kept his “buy” call on Food Empire as the company reported PATMI or earnings of US$27.1 million ($37.2 million) for the 1HFY2022 ended June, 134.4% higher y-o-y.
The higher earnings, which came despite the ongoing conflict in Ukraine, have proven Food Empire’s doubters wrong, writes Seet.
In addition, the higher earnings have validated the company’s diversified revenue streams and “resilient business model”.
“Food Empire has managed to diversify its revenue stream from Russia over the years, and revenue from other markets is now more than 50% of the total revenue (as of 1HFY2022) – even while it continues to see growth from its Russian market,” Seet writes.
“That said, we believe that Food Empire’s business will remain resilient in its core markets – the demand for instant mix coffee remains sturdy, even with an ongoing war. In fact, it gives Food Empire an advantage, as foreign competitors are leaving such markets – which would benefit the remaining players. These include Food Empire, which has the largest share of these markets,” he adds.
During the 1HFY2022, Food Empire’s net profit margin had improved 7.6 percentage points y-o-y to 15.3% after raising the prices of its products and mitigating actions taken to counter the rise in raw material as well as freight costs. Following the stabilised margins, Seet sees management as likely to intensify its marketing efforts to grow its revenue in specific markets going forward.
At its current levels, Seet believes the counter is a “steal”. “This counter is trading at just 6x FY2022 P/E,” he writes.
As the analyst expects the company to continue doing well despite the war in Ukraine, Seet has raised his FY2022 PATMI estimates by 30%. However, the analyst has noted the risk of the conflict and has lowered his pegged target price P/E to 10x from 13x.
Continuing his positive outlook, Seet says, “The asset sale of its current industrial property ($49.25 million) should also boost [Food Empire’s] balance sheet and cash position. In addition, management will start to buy back shares with the excess cash, once the asset sale is completed.”
On the environmental, social and governance (ESG) front, Seet has derived a score of 3.0, which is on par with the country median. The score has contributed a 0% discount or premium to his target price.
Shares in Food Empire closed 0.5 cents lower or 0.9% down at 55 cents on Aug 15.