Food Empire Holdings Ltd: Pivoting to Southeast Asia

Food Empire Holdings Ltd (FEH), a Singapore-based global food and beverage manufacturer, is making strategic moves to expand its footprint in Southeast Asia. With its products already sold in over 50 countries, the company has announced plans to invest in new manufacturing facilities in Kazakhstan and Vietnam. A US\$80 million freeze-dried soluble coffee manufacturing plant in Binh Dinh province, Vietnam, and a US\$30 million coffee-mix production facility in Kazakhstan are at the forefront of this expansion strategy.

FEH also recently finalized a partnership with Ikhlas Capital, issuing US\$40 million in 5-year redeemable exchangeable notes (REN) to drive its growth in Southeast Asia and South Asia. Vietnam has become the company’s fastest-growing market, contributing significantly to the 12.8% year-on-year revenue growth in 9M24, with Southeast Asia’s revenue reaching US\$94.8 million.

Financial Performance

While FEH’s revenue grew at 12.8% year-on-year in 9M24, its Southeast Asia revenue is likely to surpass its largest market, Russia, by FY25-26. However, increased marketing expenses in Vietnam and higher interest costs from the REN have led to downward revisions in the company’s FY24-26 EPS forecasts, with the target price adjusted to S\$1.43 from S\$1.73. Despite these challenges, FEH remains an attractive investment with projected dividend yields of 5.4-6.2% over FY24-26.

SWOT Analysis

• Strengths: Strong brand presence in Russia and Vietnam, vertically integrated manufacturing, and robust product R&D capabilities.
• Weaknesses: Exposure to FX risks, raw material price fluctuations, and rising logistics costs.
• Opportunities: Market share growth in Vietnam and Cambodia, diversification into food ingredients, and potential new product formats like ready-to-drink coffee.
• Threats: Escalation of the Russia-Ukraine conflict, changing consumer preferences, and potential economic slowdown reducing coffee consumption.

Recommendation

CGS International reiterates an “Add” rating for FEH, highlighting its potential growth in Vietnam and its diversified food ingredients business. The company’s valuation is based on 11.2x FY25F P/E, with significant upside potential.

Peer Comparison: Performance Across the Food and Beverage Sector

The report provides a comprehensive peer comparison for Food Empire Holdings Ltd against its global competitors in the food and beverage industry. Here’s the analysis of key players:

Ajinomoto Co Inc

Ajinomoto, a Japanese multinational, is valued at US\$20.6 billion. Its P/E ratios for CY24F and CY25F stand at 38.5x and 28.8x, respectively, with a 3-year EPS CAGR of 15.2%. Despite high valuations, its recurring ROE of 11.9% and dividend yield of 1.2% make it an attractive option for long-term investors.

Fraser & Neave Holdings

With a market cap of US\$2.25 billion, Fraser & Neave (FNH) offers a relatively moderate P/E ratio of 19.0x. Its dividend yield of 2.5% coupled with a recurring ROE of 13.9% positions it as a stable investment within the sector.

Jumbo Group Limited

Jumbo, a Singapore-based food company, trades at an attractive P/E ratio of 11.3x, coupled with a dividend yield of 4.4%. Its recurring ROE of 24.7% is among the highest in the sector, reflecting strong operational efficiency.

Kimly Group

Kimly, another Singaporean company, has a market cap of US\$299 million. It trades at a P/E ratio of 12.4x and offers a dividend yield of 6.4%. Its recurring ROE of 17.9% makes it a reliable choice for income-focused investors.

Mayora Indah Tbk PT

Indonesia’s Mayora Indah has a market cap of US\$3.73 billion and trades at P/E ratios of 20.0x and 17.4x for CY24F and CY25F, respectively. With a 3-year EPS CAGR of 9.3% and a recurring ROE of 19.2%, it remains a solid performer.

Monde Nissin Corp

Monde Nissin, based in the Philippines, has a market cap of US\$2.59 billion and trades at P/E ratios of 16.0x and 14.1x for CY24F and CY25F. Its dividend yield of 2.4% and recurring ROE of 15.5% demonstrate respectable returns for investors.

Nestle (Malaysia)

Nestle Malaysia is a premium investment with a market cap of US\$5.12 billion. However, its high P/E ratios of 42.4x and 41.1x for CY24F and CY25F make it less appealing for value investors. Its recurring ROE of 78.8% and dividend yield of 2.2% indicate strong profitability and shareholder returns.

Nestle SA

With a market cap of US\$215.2 billion, Nestle SA offers a P/E ratio of 16.2x for CY24F and a recurring ROE of 33.8%. Its dividend yield of 4.1% makes it a desirable option for income-focused investors seeking stability.

Nissin Foods Holdings Co Ltd

Japan’s Nissin Foods has a market cap of US\$7.24 billion and trades at P/E ratios of 21.5x and 19.1x for CY24F and CY25F. Its 3-year EPS CAGR of 7.6% and recurring ROE of 11.6% highlight steady growth prospects.

Nongshim Co Ltd

South Korea’s Nongshim has a market cap of US\$1.53 billion, trading at P/E ratios of 13.5x and 12.1x for CY24F and CY25F. Its recurring ROE of 6.8% and dividend yield of 1.4% reflect a conservative investment profile.

Power Root Bhd

Malaysia-based Power Root has a market cap of US\$146 million, with P/E ratios of 15.7x and 14.4x for CY24F and CY25F. Its dividend yield of 4.4% and recurring ROE of 12.4% make it a promising small-cap investment.

TAC Consumer PCL

Thailand’s TAC Consumer has a market cap of US\$79 million and trades at P/E ratios of 11.5x and 10.2x for CY24F and CY25F. Its 3-year EPS CAGR of 12.2% and dividend yield of 8.1% underscore its growth and income potential.

Thai Beverage

Thai Beverage boasts a market cap of US\$10.45 billion and trades at a P/E ratio of 13.0x. With a dividend yield of 4.4% and a recurring ROE of 15.3%, it stands out as a robust investment in the beverage sector.

Toyo Suisan Kaisha Ltd

Japan’s Toyo Suisan has a market cap of US\$7.44 billion and trades at P/E ratios of 19.7x and 16.9x for CY24F and CY25F. Its 3-year EPS CAGR of 10.8% and recurring ROE of 13.3% highlight its consistent performance.

Universal Robina Corp

Universal Robina, based in the Philippines, has a market cap of US\$3 billion and trades at P/E ratios of 14.6x and 13.6x for CY24F and CY25F. Its dividend yield of 4.6% and recurring ROE of 9.9% make it a balanced choice for growth and income.

Yakult Honsha Co Ltd

Japan’s Yakult Honsha has a market cap of US\$6.41 billion and trades at P/E ratios of 18.2x and 17.5x for CY24F and CY25F. Its recurring ROE of 9.2% and dividend yield of 2.1% ensure steady returns for investors.