Broker: CGS International
Date of Report: July 1, 2025

Food Empire Holdings: Core Earnings in Focus Amid Strong Growth Prospects and Regional Challenges

Executive Summary

Food Empire Holdings Ltd (FEH), a leading Singapore-based food and beverage company, is in the spotlight with a strategic shift to emphasize its core earnings, strong growth outlook, and ongoing efforts to mitigate non-core financial impacts. This comprehensive analysis provides investors with a detailed review of FEH’s latest developments, financial performance, peer comparison, and the key risks and opportunities shaping its future.

Key Developments: Second Supplemental Agreement and Accounting Changes

• FEH has entered a second supplemental agreement (SA) with Ikhlas Capital regarding its redeemable exchange note (REN).
• The SA aims to adopt a “fixed-for-fixed” accounting classification for the REN, eliminating non-cash fair value gains or losses related to the share exchange feature.
• An independent financial adviser, RHT Capital, confirmed that the amendments do not advantage REN holders.
• The definition of a “company liquidity event” was refined, clarifying that only accepted and board-approved bona fide offers qualify.
• Restrictions on dividend payments and share issuances below the REN exchange price are to be addressed through cash compensation to REN holders.

FEH is finalizing an independent valuation to remeasure the REN’s financial liability and fair value changes from January 1, 2025, to the SA signing date. A fair value loss (estimated at around US\$20 million previously) may be recognized in 1H25F, reflecting the share price surge. Importantly, this loss is non-cash and has no impact on actual cash flow or earnings power.

Strong Financial Performance and Growth Outlook

• Revenue is forecast to grow at a healthy pace, with a projected FY24-27F EPS CAGR of 10.3%.
• Operating EBITDA margin is expected to recover from 15.7% in 2024 to 18.4% by 2027.
• Net gearing remains low, with a net cash position improving from US\$0.09 per share in 2024 to US\$0.17 per share by 2027.

Valuation and Shareholder Returns

• Target price: S\$2.28, offering a 23.9% upside from the current S\$1.84.
• Valuation is set at 14.2x FY26F P/E, two standard deviations above the 9-year average, reflecting strong earnings momentum and market confidence.
• The dividend yield is stable at 4.14% through FY25-27F, with a payout ratio moderating to 44.3% by 2027 as earnings grow.
• Potential for a bonus issue in FY25F, as the last bonus issue was in 2008 and Singapore is celebrating SG60.

Peer Comparison: How Food Empire Stacks Up

• FEH boasts a competitive P/E and strong ROE compared to peers, with a healthy dividend yield and attractive growth prospects.
• Nestle (Malaysia) commands high valuation multiples but also delivers exceptional ROE.

ESG and Operational Highlights

• Country concentration risk is notable: Russia and Ukraine contributed 30% and 7% of FEH’s FY24 revenue, respectively.
• FEH is actively diversifying via expansion in Vietnam (3-in-1 coffee mix) and food ingredients in India and Malaysia.
• The company prioritizes product safety and accurate labelling, targeting zero non-compliance incidents—a goal achieved in FY24.
• Environmental initiatives in Vietnam include energy-saving systems, solar perimeter lighting, and warehouse skylights to reduce emissions and electricity usage.

Shareholding Structure and Market Performance

• Major shareholders include Universal Integrated Corp (25.0%), Nair Sudeep (13.2%), and Tan Guek Ming (12.0%).
• Free float stands at 39.6% with 533.8 million shares outstanding.
• Market capitalization: US\$762.2 million (S\$971.9 million).
• 1-year price performance: up 84% in absolute terms, outperforming the SIMSCI index by 54%.

Risks and Re-Rating Catalysts

Key Upside Catalysts:

• Improving operating margins amid stabilizing demand
• Sustained market share in Russia
• Any resolution to the Russia-Ukraine conflict

Key Downside Risks:

• Further escalation in Russia-Ukraine tensions could impact Russian operations
• Depreciation of the Russian ruble versus US dollar, lowering US\$ revenue

Cash Flow and Balance Sheet Strength

• Operating cash flow is expected to rebound from US\$25.5 million in 2024 to US\$81.4 million in 2027.
• Capex is projected at US\$20–30 million annually through 2027, supporting business expansion.
• Cash and equivalents are set to rise from US\$131.3 million in 2023 to US\$169.8 million by 2027.
• Net gearing remains negative, reflecting a strong net cash position and robust balance sheet.

Investment Recommendation and Outlook

• Stock rating: Add (unchanged)
• Target price: S\$2.28 (23.9% upside)
• Consensus: 5 Buys, 0 Holds, 0 Sells
• CGS International remains positive on FEH, viewing any potential share price weakness as a buying opportunity given its strong core earnings outlook and resilient fundamentals.

Conclusion

Food Empire Holdings stands out as a high-quality, growth-oriented food and beverage company with robust financials, a clear focus on core earnings, and proactive risk management. While regional risks persist, especially in Russia and Ukraine, FEH’s diversified strategy, strong cash generation, and ESG commitments position it well for future growth and sustained shareholder returns. Investors are encouraged to monitor upcoming catalysts and leverage any share price volatility as an opportunity to gain exposure to this dynamic consumer goods leader.