RHB Group Research analyst Jarick Seet has kept “buy” on Food Empire with a lower target price of $1.23 from $1.27 as he rolls his price-to-earnings (P/E) to 15 times FY2022.

This, he says, is to reflect a more accurate PATMI on a normalised basis.

He has also lowered his PATMI estimates for the FY2021 by 14% due to the surge in the cost of goods sold (COGS), which Seet believes, is temporary.

“Management will likely start raising average selling prices (ASPs) by 10% each time for two periods, to mitigate the margin drop – it has already sourced for a local supply chain to avoid freight charges for some of its raw materials,” Seet writes in an Aug 16 report.


See also: 'Buy' Food Empire on brighter outlook ahead: RHB


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On Aug 13, Food Empire saw earnings decline by 13.9% y-o-y to US$11.5 million ($15.6 million) for the 1HFY2021 ended June due to higher cost of sales.

Revenue, on the other hand, grew by 12.5% y-o-y to US$149.6 million, which Seet sees as “very encouraging”.

The higher figure is also a “strong showing by historical standards”, he says.

Food Empire’s earnings per share (EPS) for the six-month period stood at 2.11 US cents from 2.49 US cents in the same period before on a fully diluted basis.

“We expect its market share in Vietnam, India, Malaysia as well as Russia and Ukraine to continue to increase as the group launches more products into these regions,” he adds.

In addition, the share buybacks conducted by Food Empire’s management is likely to continue as management deems the company deeply undervalued.

“We share the view and believe that management will likely resume the buybacks once the blackout period is lifted,” says Seet.

At 11.4 times FY2021 P/E, Food Empire is among the cheapest consumer staples compared to its peers that’re trading at 20 times to 30 times P/E.

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


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As at 9.31am, Food Empire is trading 0.5 cent lower or 0.6% down at 80.5 cents, with an FY2021 P/B of 1.3 times and dividend yield of 2.4%, according to RHB’s estimates.

Photo: Albert Chua / The Edge Singapore