CGS International
April 17, 2025
Food Empire Holdings: Earnings Resilient Amid Trade Tensions – A Deep Dive
Key Takeaways from Food Empire Holdings’ AGM
- Food Empire Holdings (FEH) held its Annual General Meeting on April 17, 2025. [[1]]
- Management indicated minimal direct sales to the US, accounting for less than 0.5% of FY24 group revenue. [[1]]
- The company is viewed as an attractive dividend yield stock, with an expected yield of 5.9% for FY25F-27F. [[1]]
- The report reiterates an “Add” recommendation. [[1]]
Minimal Impact from US-China Trade War
- The United States is not a primary market for FEH, representing less than 0.5% of FY24 revenue. [[1]]
- China is also not a key market. [[1]]
- Key markets for FEH’s 3-in-1 coffee mix in FY24 were: [[1]]
- Russia (30%) [[1]]
- Ukraine, Kazakhstan, and the CIS (26%) [[1]]
- Vietnam (16%) [[1]]
- Beverages, mainly FEH’s own brand 3-in-1 coffee mix, accounted for 75% of FY24 revenue. [[1]]
- The remaining 25% was contributed by potato chip snacks, non-dairy creamer, and soluble coffee powder. [[1]]
Indirect Economic Impacts
- A potential risk to FEH’s earnings outlook is slower economic growth in Vietnam. [[1]]-[[2]]
- This could lead to reduced demand and lower revenue upon forex translation if the Vietnamese Dong weakens against the US\$. [[2]]
- However, due to FEH’s mass-market pricing and the relatively stable demand for coffee, the impact is expected to be manageable. [[2]]
- A shift from higher-end coffee to more affordable 3-in-1 coffee options could occur due to weaker disposable income. [[2]]
Anticipated Revenue Growth in 1Q25F
- FEH is expected to benefit from a 10-20% average selling price increase in 2H24, which will positively impact FY25F earnings. [[2]]
- The Russian ruble’s appreciation by 33% against the US\$ in 1Q25 should result in higher revenue from Russia upon forex translation into US\$. [[2]]
- These factors are expected to drive higher 1Q25F revenue year-over-year (yoy). [[2]]
- FEH typically releases its 1Q business update (revenue disclosure only) around May 9. [[2]]
Defensive Earnings and “Add” Recommendation
- FEH is viewed as a consumer staple company with resilient earnings in an uncertain environment. [[2]]-[[3]]
- Current management has experience navigating global financial crises and geopolitical conflicts. [[3]]
- The “Add” recommendation is reiterated based on expected FY25-27F EPS growth, driven by the 3-in-1 coffee mix business and capacity expansion in food ingredients. [[3]]
- The valuation basis remains at 11.2x FY26F P/E, which is 1.0 standard deviation above the 5-year mean (2019-23). [[3]]
- A potential dividend yield of 5.9% for FY25-27F is considered attractive. [[3]]
Key Catalysts and Risks
- Key re-rating catalysts: [[3]]
- Improving operating margins due to stabilizing market demand. [[3]]
- Sustained market share in Russia. [[3]]
- Resolution of the Russia-Ukraine conflict. [[3]]
- Key downside risks: [[3]]
- Escalation of the Russia-Ukraine conflict affecting Russian operations. [[3]]
- Ruble depreciation against the US\$, leading to lower revenue in US\$ terms. [[3]]
Investment Summary
- Rating: ADD (no change) [[3]]
- Current Price: S\$1.33 [[3]]
- Target Price: S\$1.71 [[3]]
- Previous Target: S\$1.71 [[3]]
- Up/downside: 28.6% [[3]]
Major Shareholders
- Universal Integrated Corp: 24.9% [[3]]-[[4]]
- Tan Guek Ming: 12.9% [[4]]
- Nair Sudeep: 12.4% [[4]]
Analyst Information
- Analyst: William TNG, CFA [[4]]
- Contact: [email protected] [[4]]
Financial Summary
| (US\$m) | Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| 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 EPS (US\$) | 0.11 | 0.09 | 0.10 | 0.11 | 0.12 |
| Core EPS Growth | 21.2% | (11.4%) | 8.4% | 8.6% | 7.5% |
| FD Core P/E (x) | 9.49 | 10.71 | 9.88 | 9.10 | 8.46 |
| DPS (US\$) | 0.075 | 0.060 | 0.060 | 0.060 | 0.060 |
| Dividend Yield | 7.37% | 5.90% | 5.90% | 5.90% | 5.90% |
| EV/EBITDA (x) | 5.29 | 6.38 | 5.79 | 5.09 | 4.43 |
| P/FCFE (x) | 14.24 | 79.42 | 13.12 | 11.41 | 10.14 |
| Net Gearing | (30.6%) | (16.2%) | (17.9%) | (20.9%) | (24.7%) |
| P/BV (x) | 1.80 | 1.81 | 1.68 | 1.55 | 1.42 |
| ROE | 19.7% | 16.9% | 17.7% | 17.7% | 17.5% |
Peer Comparison
| Company | Ticker | Recom. | Price (lcl curr) | Target Price (lcl curr) | Market Cap (US\$ m) | P/E (x) CY25F | P/E (x) CY26F | 3-year EPS CAGR (%) | P/BV (x) CY25F | P/BV (x) CY26F | Recurring ROE (%) CY25F | Dividend Yield (%) CY25F |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Food Empire Holdings Ltd | FEH SP | Add | 1.33 | 1.71 | 533 | 9.9 | 9.1 | 8.2% | 1.68 | 1.55 | 17.7% | 5.9% |
| Delfi Ltd | DELFI SP | Add | 0.71 | 0.88 | 328 | 13.9 | 12.0 | 4.7% | 1.54 | 1.45 | 5.8% | 4.7% |
| Japfa Ltd | JAP SP | Hold | 0.62 | 0.62 | 888 | 9.0 | 8.5 | na | 1.18 | 1.06 | 2.4% | 3.2% |
| Thai Beverage | THBEV SP | Reduce | 0.50 | 0.58 | 9,560 | 0.5 | 0.4 | na | 0.08 | 0.07 | 0.5% | 1.6% |
Simple average excluding Food Empire: P/E (x) 7.8 CY25F, P/E (x) 7.0 CY26F, CAGR (%) 4.7%, P/BV (x) 0.93 CY25F, P/BV (x) 0.86 CY26F, ROE (%) 2.9 CY25F, Dividend Yield (%) 3.2 CY25F [[2]]
ESG Considerations
- LSEG has not yet issued an ESG score for Food Empire Holdings as of March 2025. [[3]]
Country Concentration Risk
- Russia and Ukraine are key markets for FEH. [[3]]
- In FY24, Russia accounted for 30% and Ukraine 7% of FEH’s total revenue, combining for 37%. [[3]]
- FEH is diversifying its dependence on these markets by building its 3-in-1 coffee mix business in Vietnam and food ingredients production in India and Malaysia. [[3]]
ESG Highlights
- Product safety is a paramount concern for FEH, with significant emphasis on ensuring products are safe for consumption and accurately labeled. [[3]]
- Mismanagement can lead to loss of reputation, financial penalties, and breaches of product safety laws. [[3]]
- FEH has established quality and food safety standards that meet or exceed statutory and regulatory requirements. [[3]]-[[4]]
- The group has implemented its own Quality Management System and Product Safety System, validated internally and by external inspectors. [[4]]
- FEH has set perpetual targets of: [[4]]
- Zero confirmed incidents of non-compliance with consumer health and safety laws. [[4]]
- Zero confirmed incidents of non-compliance with product information and labeling regulations. [[4]]
- FEH achieved both targets in FY24. [[4]]
Sustainability Trends
- Food and agriculture account for an estimated 25-35% of global greenhouse gas emissions. [[4]]
- FEH recognizes the importance of improving resource use efficiency and reducing emissions throughout its operations and value chain. [[4]]
- Food Empire Vietnam (FEV) has implemented energy-saving actions to reduce electricity consumption and emissions, including: [[4]]-[[5]]
- Day/night light switching systems. [[5]]
- Solar electricity for factory perimeter lights. [[5]]
- Sky lights in warehouses. [[5]]
- Energy-saving LED lamps. [[5]]
Financial Performance Analysis
P/BV vs ROE
Analysis of P/BV (Price to Book Value) against ROE (Return on Equity) from Jan-21A to Jan-26F indicates a positive correlation between the company’s ROE and its valuation. [[4]]
12-mth Fwd FD Core P/E vs FD Core EPS Growth
Analysis of 12-month Forward Fully Diluted Core P/E against Fully Diluted Core EPS Growth from Jan-21A to Jan-26F highlights the relationship between earnings growth and investor valuation. [[4]]
Profit & Loss (US\$m)
| (US\$m) | Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Total Net Revenues | 425.7 | 476.3 | 504.2 | 533.8 | 565.4 |
| Gross Profit | 152.3 | 156.1 | 164.3 | 174.5 | 185.3 |
| Operating EBITDA | 81.7 | 75.0 | 81.1 | 89.3 | 97.9 |
| Depreciation And Amortisation | (10.8) | (11.7) | (13.0) | (14.3) | (15.7) |
| Operating EBIT | 70.9 | 63.3 | 68.1 | 74.9 | 82.3 |
| Financial Income/(Expense) | 0.8 | (0.3) | (1.4) | (1.4) | (1.7) |
| Pretax Income/(Loss) from Assoc. | 1.3 | (0.5) | 0.0 | 0.0 | (0.5) |
| Non-Operating Income/(Expense) | (0.6) | (0.2) | 1.0 | 0.0 | (1.0) |
| Profit Before Tax (pre-EI) | 72.5 | 62.4 | 67.8 | 73.6 | 79.1 |
| Pre-tax Profit | 72.5 | 65.2 | 67.8 | 73.6 | 79.1 |
| Taxation | (16.0) | (12.3) | (13.6) | (14.7) | (15.8) |
| Profit After Tax | 56.5 | 52.9 | 54.2 | 58.9 | 63.3 |
| Minority Interests | 0.0 | (0.3) | (0.3) | (0.3) | (0.3) |
| Net Profit | 56.5 | 52.5 | 53.9 | 58.5 | 62.9 |
| Recurring Net Profit | 56.5 | 49.7 | 53.9 | 58.5 | 62.9 |
Cash Flow (US\$m)
| (US\$m) | Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| EBITDA | 81.75 | 74.96 | 81.13 | 89.28 | 97.95 |
| Cash Flow from Invt. & Assoc. | (1.34) | 0.50 | 0.00 | 0.00 | 0.50 |
| Change In Working Capital | (16.38) | (38.30) | (6.53) | (6.95) | (7.41) |
| Other Operating Cashflow | 1.73 | 0.40 | 0.90 | 0.42 | (1.04) |
| Net Interest (Paid)/Received | 0.80 | (0.26) | (1.36) | (1.36) | (1.70) |
| Tax Paid | (12.70) | (11.78) | (13.55) | (14.71) | (15.81) |
| Cashflow From Operations | 53.86 | 25.52 | 60.59 | 66.67 | 72.49 |
| Capex | (12.16) | (24.43) | (20.00) | (20.00) | (20.00) |
| Cash Flow From Investing | (12.37) | (19.79) | (20.00) | (20.00) | (20.00) |
| Debt Raised/(repaid) | (3.85) | 0.97 | 0.00 | 0.00 | 0.00 |
| Proceeds From Issue Of Shares | 1.11 | 3.13 | 0.00 | 0.00 | 0.00 |
| Shares Repurchased | (7.60) | (6.20) | 0.00 | 0.00 | 0.00 |
| Dividends Paid | (17.29) | (39.16) | (31.41) | (31.41) | (31.41) |
| Cash Flow From Financing | (31.54) | (5.74) | (31.41) | (31.41) | (31.41) |
| Total Cash Generated | 9.95 | 0.00 | 9.18 | 15.26 | 21.07 |
| Free Cashflow To Equity | 37.65 | 6.70 | 40.59 | 46.67 | 52.49 |
| Free Cashflow To Firm | 45.03 | 9.97 | 46.29 | 52.37 | 58.19 |
Balance Sheet (US\$m)
| (US\$m) | Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F |
|---|---|---|---|---|---|
| Total Cash And Equivalents | 131.3 | 130.9 | 140.0 | 155.3 | 176.4 |
| Total Debtors | 42.4 | 54.0 | 56.9 | 60.0 | 63.3 |
| Inventories | 76.7 | 110.8 | 118.0 | 124.9 | 132.3 |
| Total Other Current Assets | 7.9 | 10.1 | 10.1 | 10.1 | 10.1 |
| Total Current Assets | 258.3 | 305.7 | 325.0 | 350.3 | 382.0 |
| Fixed Assets | 114.9 | 131.3 | 138.3 | 144.0 | 148.3 |
| Total Investments | 12.6 | 8.5 | 8.5 | 8.5 | 8.0 |
| Intangible Assets | 8.8 | 10.2 | 10.2 | 10.2 | 10.2 |
| Total Other Non-Current Assets | 8.3 | 4.4 | 4.4 | 4.4 | 4.4 |
| Total Non-current Assets | 144.6 | 154.4 | 161.4 | 167.0 | 170.9 |
| Short-term Debt | 17.2 | 30.3 | 30.3 | 30.3 | 30.3 |
| Total Creditors | 53.5 | 62.1 | 65.7 | 69.2 | 72.9 |
| Other Current Liabilities | 6.2 | 7.0 | 7.0 | 7.0 | 7.0 |
| Total Current Liabilities | 76.8 | 99.3 | 103.0 | 106.5 | 110.2 |
| Total Long-term Debt | 23.9 | 52.6 | 52.6 | 52.6 | 52.6 |
| Total Other Non-Current Liabilities | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Total Non-current Liabilities | 23.9 | 52.6 | 52.6 | 52.6 | 52.6 |
| Total Provisions | 7.7 | 12.1 | 12.1 | 12.1 | 12.1 |
| Total Liabilities | 108.4 | 164.0 | 167.6 | 171.1 | 174.8 |
| Shareholders’ Equity | 295.6 | 293.8 | 316.3 | 343.4 | 374.9 |
| Minority Interests | (1.1) | 2.3 | 2.6 | 3.0 | 3.3 |
| Total Equity | 294.5 | 296.1 | 318.9 | 346.3 | 378.2 |
Key Ratios
| Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Revenue Growth | 6.9% | 11.9% | 5.8% | 5.9% | 5.9% |
| Operating EBITDA Growth | 29.3% | (8.3%) | 8.2% | 10.0% | 9.7% |
| Operating EBITDA Margin | 19.2% | 15.7% | 16.1% | 16.7% | 17.3% |
| Net Cash Per Share (US\$) | 0.17 | 0.09 | 0.11 | 0.14 | 0.18 |
| BVPS (US\$) | 0.56 | 0.56 | 0.60 | 0.65 | 0.71 |
| Gross Interest Cover | 20.04 | 14.93 | 11.95 | 13.15 | 14.43 |
| Effective Tax Rate | 22.1% | 18.9% | 20.0% | 20.0% | 20.0% |
| Net Dividend Payout Ratio | 69.5% | 63.2% | 58.3% | 53.7% | 49.9% |
| Accounts Receivables Days | 29.85 | 33.69 | 36.93 | 36.95 | 36.94 |
| Inventory Days | 100.6 | 107.1 | 122.8 | 123.3 | 123.5 |
| Accounts Payables Days | 65.49 | 60.30 | 61.83 | 62.11 | 62.18 |
| ROIC (%) | 37.7% | 31.7% | 27.1% | 28.3% | 29.7% |
| ROCE (%) | 22.5% | 18.3% | 18.0% | 18.5% | 18.9% |
| Return On Average Assets | 14.2% | 11.7% | 11.7% | 12.0% | 12.1% |
Key Drivers
| Dec-23A | Dec-24A | Dec-25F | Dec-26F | Dec-27F | |
|---|---|---|---|---|---|
| Revenue growth | (3.5) | (1.1) | 5.0 | 5.0 | 5.0 |
