RHB Group Research is keeping its “buy” call on Food Empire with a target price of 75 cents as the stock turned out to be more resilient than expected amid the Covid-19 pandemic.

In its latest 1H20 results, the group recorded earnings of US$13.4 million, just 1.1% higher than the previous year. Revenue was however 4.0% lower y-o-y at US$132.9 million, due to disruptions from a national lockdown in the group’s main market Russia, as well as the depreciation in Russian ruble.

Production has also been affected by lockdowns, as the group’s coffee plant in India faced cancellations and postponement of orders from customers.

The lower sales in 1H20 were partially offset by a 3% y-o-y growth in Ukraine, Kazakhstan and Commonwealth of Independent States (CIS) markets, as well as South-East Asia, where sales volumes were resilient and selling prices increased.

But the group managed to cut overall expenses to help boost earnings. Selling and marketing expenses declined by 1.2% y-o-y to $19.5 million, while general and administrative expenses fell 10.5% y-o-y to $16.9 million.

For now, more countries are easing their lockdown restrictions and analyst Juliana Cai believes that this should contribute to earnings improvement for Food Empire.

As Russia eased its restrictions, management highlighted that July and August sales have recovered to more than 90% of pre-Covid levels.

On the other hand, Kazakhstan and Vietnam have implemented another round of lockdowns to combat the resurgence of Covid-19 infections. Fortunately, the second round of lockdowns were not as strict as the first – and this impact not expected to be worse than what it was in 2Q20.

“Although there could be short-term disruptions to sales – from movement restrictions and supply chain challenges – we do not expect consumer demand for Food Empire’s products to be severely impacted by Covid-19, due to its staple nature and low price points,” says Cai, who reckons that sales will normalise once the Covid-19 situation in markets plateau and consumers become used to the new normal.

As at 2.00pm, shares in Food Empire are trading at 60 cents or about 1.1 times FY20 book with a dividend yield of 2.4%.