Johor’s Beloved Café Chain Goes Public, Shining a Spotlight on Singapore’s Hidden Gem

Oriental Kopi, a beloved café chain in Malaysia known for its mouthwatering nasi lemak, creamy chendol, and delectable egg tarts, has taken a major leap by launching its initial public offering (IPO) on Malaysia’s Ace Market. Priced at 44 sen per share, the IPO values Oriental Kopi at a price-to-earnings (PE) ratio of 20x, placing it on par with the region’s food and beverage (F&B) industry averages.

This move isn’t just about Oriental Kopi—it’s turning heads towards another player in the market that might be flying under the radar: Singapore’s Food Empire Holdings (FEH).

The Numbers Game: How Oriental Kopi Stacks Up

At a 20x PE, Oriental Kopi finds itself slightly ahead of Power Root, a Malaysian coffee manufacturer best known for supermarket staples like Ah Huat and Alicafe, which trades at 14-15x PE. The industry average for F&B companies on CGS International’s radar hovers around 18-19x PE.

Meanwhile, Singapore-based F&B companies like Kimly and Jumbo Group boast PE ratios of 11-12x. Yet, Food Empire Holdings, a Singaporean global F&B powerhouse, trades at a mere 8x PE. Compared to its peers, Food Empire looks like an undervalued gem, offering investors a potentially lucrative opportunity.

Food Empire: A Quiet Contender with Big Plans

Food Empire isn’t just a coffee company—it’s a diversified F&B giant with brands like Café PHO, a hit in Vietnam, and MacCoffee, which has captured hearts in Russia. Analysts from CGS International see significant upside for Food Empire, with a target price of S$1.43, which would align its valuation with its Singaporean peers.

This optimism stems from the company’s bold expansion plans:

• Vietnam Investment: Food Empire is pouring US$80 million into a state-of-the-art freeze-dried soluble coffee manufacturing facility in Binh Dinh province, set to bolster its presence in Asia’s fast-growing markets.
• Kazakhstan Expansion: A US$30 million investment will establish a coffee-mix production facility, offering ample room for future growth.
• Strategic Partnership with Ikhlas Capital: The private equity-backed partnership, finalized in late 2024, aims to unlock regional opportunities, supported by a US$40 million, 5-year redeemable exchangeable note (REN).

Financial Performance: Steady Growth Across Regions

Food Empire reported impressive numbers for the first nine months of 2024:

• Revenue surged 12.8% year-over-year to US$344.3 million.
• Southeast Asia and South Asia emerged as key growth drivers, with revenues climbing 30.6% and 28.3% respectively.
• Vietnam stands out as the company’s fastest-growing market, while South Asia’s growth was fueled by strong sales of snacks and non-dairy creamer.

Analysts forecast that Southeast Asia could surpass Russia, currently Food Empire’s largest revenue contributor, as its top market by 2025-26.

The Analyst Take: Reiterating “Add” for Food Empire

CGS International’s William Tng, CFA, highlights several reasons to remain bullish on Food Empire:

• Growth Potential in Vietnam: Expanding production and marketing efforts in a high-demand market.
• Food Ingredients Business Expansion: Leveraging its expertise to enter new markets.
• Strong Resilience in Russia: Despite geopolitical risks, the company maintains a dominant position.

However, risks remain, including fluctuations in the Russian ruble and potential escalations in the Russia-Ukraine conflict, which could impact its operations.

A Sweet Deal for Investors?

As Oriental Kopi attracts attention with its IPO, investors may want to take a closer look at Food Empire. With its robust growth strategy, strong financials, and low PE ratio, Food Empire offers a compelling alternative in the F&B sector.

In the competitive world of kopi and cuisine, it seems there’s more brewing beneath the surface than just a good cup of coffee.

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