RHB Group Research analyst Jarick Seet has maintained his “buy” rating on Food Empire with a higher target price of $1.27 from 80 cents previously.

The revised target price comes following Food Empire’s stronger performance for the 4QFY2020 ended December. Despite y-o-y revenues decreasing due to Covid-19 impacting sales, Food Empire was able to sequentially improve from 2QFY2020 onwards and reported record FY2020 results.

The company’s FY2020 earnings increased by 2.9% to US$26.5 million ($35.2 million) due to better margins, which management attributes to solving the operational and logistical issues caused by the pandemic and lower marketing and administrative costs. Food Empire declared record dividends of 2.2 cents per ordinary share for the period.

Seet expects the improved margins and increasing demand to underpin a strong rebound for Food Empire’s FY2021 performance.

“We expect demand to remain resilient, and increase in FY2021. Note that 4Q20 profitability was 11.5% stronger on a q-o-q basis. Going forward, management has also revealed that marketing and administrative costs are likely to remain low this year, even though revenue is likely to rebound further,” he writes.

Get the latest Singapore corporate news stories for FREE

In addition, the company will likely benefit from the appreciation of the ruble in November 2020, given its position as a market leader in Russia.

To this end, Food Empire remains one of Seet’s top sector picks, given that the company is undervalued compared to its peers.

“At 11 times FY2021 price-to-earnings (P/E), Food Empire is among the cheapest consumer staples players with a proven track record. Note that its peers are trading at 20-30x P/Es. With the company being a market leader in Russia and Ukraine, we remain bullish on its outlook, and maintain a ‘buy’ call,” Seet writes.

“Privatisation may be a possibility, given its undervalued status. Management has also been aggressively buying back shares in Dec 2020 and Jan 2021. The last share buyback price was at 76 cents per unit – on Jan 21, before the black-out period. We expect this to continue, as management believes the stock is deeply undervalued vs its peers and acquisition targets,” he adds.

As at 9.07am, shares in Food Empire are trading flat at 91.5 cents.