CGS International ‘buy’ $1.84 Maybank Securities ‘buy’ $1.68 UOB Kay Hian ‘buy’ $1.69 RHB Bank Singapore ‘buy’ $1.75

Record core earnings and dividend

Analysts have raised their target prices for Food Empire Holdings after the instant coffee maker reported record core record FY2023 ended December 2023 earnings and dividends.

On Feb 27, the company reported that FY2023 revenue increased by 6% y-o-y of US$425.7 million ($572 million), led by stronger demand from its key markets including the former Soviet states, Southeast Asia and South Asia.

Net margins between FY2022 and FY2023 improved from 11.3% to 13.3%, which helped drive core net profit to a record 25.3% y-o-y to US$56.5 million.

The company plans to pay a record dividend of 10 cents per share consisting of a final and special dividend of five cents each, representing a payout ratio of 70%. In contrast, Food Empire paid just four cents for FY2022.

In his Feb 28 note, Maybank Securities analyst Jarick Seet projects further earnings growth, with a key driver from Food Empire’s non-dairy creamer business where new capacity has been added.

He estimates this can potentially add between US$20 million and US$40 million in revenue in the next one to two years, fetching a net margin of between 8% and 10%.

“In addition, demand from core markets remains strong which should drive revenue growth of 5%–10% consistently y-o-y,” says Seet, who is expecting a new earnings record in the current FY2024.

Having raised his FY2024 earnings estimate by 17.3% and FY2025’s by 14.5%, Seet has derived a new target price of $1.68, based on 11 times FY2024 earnings.

Despite raising selling prices during the year, the company managed to move a bigger volume of products. To UOB Kay Hian analysts John Cheong and Heidi Mo, this price inelasticity is a testament to Food Empire’s strong brand equity. The company was also able to overcome the worst effects of the unfavourable currency movements.

“Hence, we forecast higher earnings and margins moving forward,” state Cheong and Mo, with a new target price of $1.69, up from $1.63 previously.

Similarly, Alfie Yeo of RHB Bank Singapore, who has kept his “buy” call, believes that Food Empire can defend its margins by adjusting prices.

Thus, with higher revenue seen, he has raised his earnings projection for the company by between 5% and 7% for the current FY2024 and coming FY2025. Yeo’s new target price is $1.75, up from $1.53 previously.

William Tng of CGS International says his “add” rating is premised on Food Empire’s potential to grow its operations in Vietnam as a new major revenue contributor and also further growth in the food ingredients segment. Tng’s new target price of $1.84, up from $1.69, is based on 11.2 times FY2025F earnings, which is 1 s.d. (standard deviation) above its five-year mean. —