Food Empire Holdings (FEH SP): BUY Rating, TP SGD2.00 – Growth & Diversification Analysis

Maybank Research Pte Ltd

May 14, 2025

Food Empire Holdings: Back to Growth with a Diversified Strategy

Food Empire Holdings (FEH SP) is showing strong signs of growth, prompting an upgrade in its target price. This analysis dives into the factors driving this positive outlook, including revenue diversification, margin improvements, and strategic capacity expansions.

Revised Target Price and Recommendation

• Maintain BUY recommendation.
• Increased target price (TP) to SGD2.00 from SGD1.19.
• The new TP is based on a higher 13x FY25E P/E, up from the previous 8x.
• This reflects a reduced discount compared to its peers’ 20+x P/E ratios. [[1]]

Strong First Quarter Performance

• FEH’s revenue for 1Q25 surged by 16.3% year-over-year (YoY), reaching USD136.6 million. [[1]]
• This growth was primarily fueled by a 44.6% YoY increase in revenue from Vietnam, surpassing expectations. [[1]]

Revenue Diversification Success

• Southeast Asia (SEA) revenue now exceeds that of Russia, marking a significant achievement in the group’s diversification strategy. [[1]]
• SEA revenue reached USD40m, a 33.8% YoY increase. [[1]]

Growth Drivers and Margin Improvement

• Anticipated margin improvements as price increase adjustments take effect. [[1]]
• Robust growth expected in Asia, supported by ongoing capacity expansion projects. [[1]]

Financial Forecast Adjustments

• FY25/26E PATMI (Profit After Tax and Minority Interests) raised by 18%/23%. [[1]]

Russia’s Reduced Dominance

• Russia is no longer the largest revenue generator for FEH. [[1]]

Regional Performance Details

• Vietnam’s revenue growth stood at 44.6% YoY in 1Q25. [[1]]
• Ukraine, Kazakhstan, and CIS markets experienced a combined revenue growth of 14.9% YoY, totaling USD33.9 million, with Kazakhstan being a key contributor through Tea House LLP. [[1]]

Asia as the Primary Growth Engine

• FEH is set to complete a freeze-dried soluble coffee manufacturing facility in Vietnam by 2028, positioning itself as a major soluble coffee manufacturer in Asia. [[1]]
• In Malaysia, the snack manufacturing facility expansion is expected to be completed in 1H25, increasing commercial output capacity by 50% by 3Q25. [[1]]
• The expanded non-dairy creamer manufacturing facility will continue to ramp up production capacity utilization. [[1]]
• Construction of the first coffee-mix manufacturing facility in Kazakhstan is slated for completion by the end of 2025. [[1]]

P/E Re-Rating Justification

• Historically, FEH’s valuation was discounted due to its reliance on Russia as the primary revenue and profit driver. [[1]]
• With successful diversification and Asia expansion plans, a P/E re-rating is justified, leading to a reduced discount compared to peers. [[1]]

Key Statistics

• Current Share Price: SGD 1.53 [[1]]
• 12-Month Price Target: SGD 2.00 (+42%) [[1]]
• Previous Price Target: SGD 1.19 [[1]]
• 52-week High/Low (SGD): 1.56/0.95 [[1]]
• 3-month Average Turnover (USDm): 1.2 [[1]]
• Free Float (%): 24.1% [[1]]
• Issued Shares (m): 548 [[1]]
• Market Capitalisation: SGD838.6M / USD643M [[1]]

Major Shareholders

• SALIM ANTHONI: 12.5% [[1]]
• TAN GUEK MING: 12.0% [[1]]
• NAIR SUDEEP [[1]]

Price Performance Analysis

• Absolute (%): -1M: 22, -3M: 57, -12M: 35 [[1]]
• Relative to Index (%): -1M: 11, -3M: 57, -12M: 15 [[1]]

Financial Highlights and Forecasts

Changes in Forecasts [[2]]

Value Proposition [[3]]

• Market leader in 3-in-1 coffee in Russia.
• Growing steadily in new markets like Vietnam and other Southeast Asian countries.
• Fully integrated with a freeze-dry coffee plant in India.
• Relatively high barriers to entry and strong brand recognition.
• Trading at a discount to global peers.
• Robust balance sheet.
• Clear ESG policies and strategies.

Financial Metrics [[3]]

• Improvement in margins due to new policies and price increases.
• Revenue growth in key existing and new markets.
• Positive cash flow, self-funded capex plans, and generous annual dividends.

Historical Share Price Trend – Key Events [[3]]

• Sep’19: Inaugural Sustainability Award as Winner under the ‘Small Cap’ category.
• Dec’20: Expanded manufacturing facility in India.
• Oct’21: The Enterprise Award 2020/21 under The Singapore Business Awards.
• Feb’22: Russia launched a military invasion of Ukraine, causing supply chain disruptions and FX volatility.
• Aug’22: Recognized as one of the Top 100 “Most Valuable Singaporean Brands” by Brand Finance, with a brand value of USD101m.

Swing Factors – Upside [[3]]

• End of the Russia-Ukraine war.
• Continued strong growth in other markets and revenue diversification away from Russia.
• Potential takeover target by larger F&B players or private equity funds.

Swing Factors – Downside [[3]]

• Escalation of the Russian war.
• Higher raw material prices and Ruble depreciation.
• New competitors entering the market.

ESG Risk Rating & Score [[4]]

• Not Rated
• Score Momentum: na
• Controversy Score: na

Business Model & Industry Issues [[4]]

• Emphasis on product health and safety.
• Measures to deal with high freight prices, supply chain disruptions, and inflationary cost pressures.
• Economic sanctions on Russia leading to supply chain disruptions and currency exchange rate volatility.

Material Environmental (E) Issues [[4]]

• Climate risk impacting coffee plant yields.
• Energy conservation initiatives at the facility level.
• Efficient and responsible use of water throughout operations.

Material Social (S) Issues [[4]]

• Constant review of food safety and quality policies.
• High turnover rate in Vietnam’s sales division.
• COVID-19 testing and vaccination center at the Vietnam plant.

Key Governance (G) Metrics and Issues [[4]]

• The board has eight directors, including the Executive Chairman, the CEO/Executive Director and six independent Non-Executive Directors.
• Nominating, audit, and remuneration committees are chaired by independent directors.
• The board is made up of 87.5% males.
• Executive Chairman, Tan Wang Cheow and CEO Sudeep Nair hold about 22.5% and 11.27% stakes in the company respectively.
• Institutional investor, FMR LLC is a substantial shareholder and owns about 8% interest in the company.
• The external auditor is Ernst & Young LLP.
• Country-specific safety management systems and committees are put in place.
• There were no cases of non-compliance with all applicable laws and regulations concerning consumer health and safety in its Vietnam plant.
• To reduce market-concentration risks, FEH has diversified into different markets in Asia over the years.

Quantitative Parameters [[5]]

Qualitative Parameters [[5]]

• ESG Policy: Yes, with a dedicated Food Empire Sustainability Committee reporting to top management.
• Senior Management Salary Linked to ESG Targets: Yes
• TCFD Framework for ESG Reporting: Yes
• Mechanism to Capture Scope 3 Emissions: No
• Key Carbon Mitigation/Water/Waste Management Strategies: Changed forklift equipment from diesel-based to electricity-based machines.
• Carbon Offset as Part of Net Zero/Carbon Neutrality Target: No

ESG Targets [[5]]

Overall ESG Score [[5]]

• Overall Score: 60
• FEH has an established framework, internal policies, and tangible medium/long-term targets but needs to make headway in improving its quantitative “S” and “G” metrics.
• The ESG rating is above average.

ESG Score Weights [[5]]

Key Metrics and Ratios [[6, 7]]

Income Statement (USD m) [[6]]

Balance Sheet (USD m) [[6]]

Cash Flow (USD m) [[6]]

Research Team and Contact Information [[8]]

• Detailed contact information for various research analysts covering Economics, FX, Strategy, Fixed Income, and Regional Equities is available.

Disclaimer [[9]]

• This report is for informational purposes only and not an offer to sell or a solicitation of an offer to buy securities.
• Values of securities may fluctuate.
• Past performance is not indicative of future results.
• Seek financial, legal, and other advice before investing.

Disclosure of Interest [[10]]

• Maybank IBG and its Representatives may have positions or be materially interested in the securities mentioned.
• They may act as a market maker or have underwriting commitments.

Rating System Definitions [[11]]

• BUY: Expected return above 10% in the next 12 months.
• HOLD: Expected return between 0% to 10% in the next 12 months.
• SELL: Expected return below 0% in the next 12 months.

Historical Recommendations and Target Price [[11]]

• A chart detailing historical recommendations and target prices for Food Empire Holdings is provided.

Office Locations [[12]]

• Contact information for Maybank IBG research offices in various locations, including Malaysia, Singapore, London, Hong Kong, Indonesia, India, Philippines, and Thailand.