RHB Group Research analyst Jarick Seet has kept “buy” on Food Empire with the same target price of $1.23.

In his report dated Oct 5, Seet sees the company’s share buybacks as a “strong vote of confidence” from its management.

On Sept 28, 29 and 30, Food Empire’s management purchased a total of 340,000 shares, at 77.26 cents apiece, 77.89 cents apiece and 78.78 cents apiece respectively.

The company has also marked revenue growth of 12.5% y-o-y in the 1HFY2021, which is a “strong showing” by historical standards.

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Sales to its core market in Russia grew 12.8% y-o-y while sales to other markets in Southeast Asia and South Asia grew by 13.2% y-o-y and 91% y-o-y.

To this end, Seet also expects Food Empire’s market share in Vietnam, India and Malaysia, as well as its market share in Russia and Ukraine to continue to grow, as the group introduces more new products into these regions.

That said, the company’s margins in 1HFY2021 were mainly impacted by the surge in freight rates and raw material prices, which should be a “temporary blip”, according to Seet.

“Management will likely raise average selling prices (ASPs) to mitigate the rise in margins – it aims to raise ASPs by 10% each time in two batches, from end-3QFY2021 onwards,” says Seet.

“The group has also begun sourcing from other local supply chains for raw materials, which should save on freight costs and pare down overall cost of goods sold (COGS). As a result, we think the increase in costs is only temporary, and margins should normalise once global vaccination rates increase and Covid-19 becomes endemic,” he adds.

On the back of the temporary surge in COGS, Seet has cut his FY2021 PATMI estimates by 14%.

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However, his target price remains at $1.23, which is pegged at 15 times FY2022 price-to-earnings (P/E) to reflect a “more accurate PATMI on a normalised basis”.

“We remain confident on Food Empire Holdings’ prospects, and believe that it remains an attractive target for privatisation or acquisition, due to its attractive valuation,” he says.

Shares in Food Empire closed 0.5 cent higher or 0.65% up at 77.5 cents on Oct 5, or an FY2021 P/B of 1.3 times with a dividend yield of 2.0%.

Photo: Albert Chua/The Edge Singapore