Broker: CGS International
Date of Report: April 17, 2025
Food Empire Holdings: Robust Dividend Yields and Resilience Amid Global Trade Tensions
Overview: Defensive Earnings and Attractive Yields in Food & Beverages
Food Empire Holdings Ltd (FEH), a leading Singapore-based food and beverage company, continues to demonstrate earnings resilience despite ongoing global trade tensions. With a focus on mass-market coffee mixes, strategic market positioning, and a strong dividend yield outlook, FEH stands out as a compelling choice for investors seeking stability and income.
Minimal Direct Exposure to US-China Trade War
– Management highlighted at the recent AGM that direct US sales account for less than 0.5% of FY24 revenue, and the US is not a core market. – China is similarly non-critical to the group’s revenue base. – Key revenue contributors in FY24 were: – Russia: 30% – Ukraine, Kazakhstan, and CIS: 26% – Vietnam: 16% – Beverages (mainly 3-in-1 coffee mix) accounted for 75% of FY24 revenue, with the remaining 25% from potato chip snacks, non-dairy creamer, and soluble coffee powder.
Indirect Impacts and Market Risks
– The main risk to earnings lies in potential economic slowdown in Vietnam, which may dampen demand and affect revenue if the Vietnamese Dong weakens against the USD. – However, FEH products are mass-market and coffee consumption is relatively sticky, making the company’s revenue base resilient. – Economic pressures could accelerate downtrading from premium coffee to FEH’s affordable 3-in-1 offerings, potentially benefitting FEH during downturns.
Growth Drivers: Price Increases and Forex Tailwinds
– FEH raised average selling prices by 10-20% in 2H24, with these gains expected to bolster FY25 earnings. – The Russian ruble appreciated by 33% against the USD in 1Q25, leading to higher reported revenue from Russia upon forex translation. – These two factors are expected to result in stronger 1Q25F revenue year-on-year.
Defensive Earnings and Valuation Rationale
– As a consumer staple provider, FEH’s earnings remain robust despite macroeconomic uncertainties. – The management team has successfully navigated past crises, including the Global Financial Crisis and Russia-Ukraine conflicts. – Projected EPS growth for FY25-27F is underpinned by: – Expansion in the staple 3-in-1 coffee mix segment – Capacity increases in the food ingredients business – Target valuation: 11.2x FY26F P/E, 1.0 standard deviation above the 5-year mean. – Projected dividend yield of 5.9% from FY25-27F enhances the stock’s income appeal.
Key Catalysts and Risks
Catalysts for Re-rating:
- Improving operating margins as market demand stabilizes
- Sustained market share in Russia
- Resolution of the Russia-Ukraine conflict
Downside Risks:
- Escalation of the Russia-Ukraine conflict impacting Russian operations
- Depreciation of the ruble against the USD, leading to lower reported revenue
Shareholder Structure and Market Performance
- Major shareholders: Universal Integrated Corp (24.9%), Tan Guek Ming (12.9%), Nair Sudeep (12.4%)
- Market cap: US\$533.2m (S\$700.8m)
- Free float: 39.8%
- Share price (as of report): S\$1.33
- Target price: S\$1.71 (upside: 28.6%)
- Dividend yield: 5.9% (FY25-27F)
Key Financial Summary (US\$ million)
| Year End Dec |
2023A |
2024A |
2025F |
2026F |
2027F |
| Revenue |
425.7 |
476.3 |
504.2 |
533.8 |
565.4 |
| Operating EBITDA |
81.75 |
74.96 |
81.13 |
89.28 |
97.95 |
| Net Profit |
56.51 |
52.53 |
53.87 |
58.52 |
62.92 |
| Core
|
