Food Empire Holdings (FEH SP): A Strategic Push Towards Diversification

Recommendation: HOLD (Maintained)

Target Price: S\$1.10 (+12.2% upside from S\$0.98)

Food Empire Holdings (FEH) is a Singapore-based manufacturer and marketer of instant beverage products, frozen convenience food, confectioneries, and snacks. With significant exports to regions such as Russia, Eastern Europe, Central Asia, the Middle East, and Indochina, FEH is strategically positioning itself for diversification amidst challenging market conditions.

Key Developments and Strategic Moves

• New Office at Asia Green: The company inaugurated its new office at Asia Green on 16 January 2025. The office is designed to foster growth, collaboration, and innovation.
• Upcoming Results: FEH will release its 2H24 financial results on 26 February 2025. Expected net profit for 2H24 is between US\$22m-23m, bringing the full-year profit to US\$46m-47m. However, margins remain under pressure due to high coffee prices and currency devaluation.
• Vietnam Coffee Facility: An investment of US\$80m into a new freeze-dried coffee manufacturing facility in Binh Dinh, Vietnam, positions FEH to tap into the burgeoning Southeast Asian coffee market. Construction for a second facility is set to begin in 1Q25 and complete by early 2028.
• Brand Recognition: FEH debuted on Brand Finance’s ASEAN 500 list of most valuable brands and secured the 60th position on Brand Finance’s Top 100 Most Valuable Singaporean Brands.

Financial Highlights

• Revenue Growth: 2024 revenue is forecasted at US\$456m, up from US\$426m in 2023.
• Net Profit: Predicted to decline to US\$46m in 2024 from US\$57m in 2023 due to margin pressure.
• Valuation: Target price revised to S\$1.10, pegged to 8.7x 2025F PE, reflecting a 0.5 standard deviation below the long-term mean.

Challenges

FEH faces rising coffee prices driven by poor weather in Brazil and Vietnam, supply chain disruptions, and currency devaluation in key markets like Russia, Ukraine, and Vietnam.

Peer Comparison

Thai Beverage (THBEV SP)

Trading Price: S\$0.54

Market Cap: US\$9,922m

Thai Beverage, a dominant player in the consumer staples sector, is trading at a 2025F PE of 11.7x. While its dividend yield of 4.9% is competitive, the company faces high gearing at 81.8%, reflecting significant leverage. Thai Beverage boasts a robust ROE of 18.6%, indicating strong profitability.

Fraser and Neave (FNN SP)

Trading Price: S\$1.35

Market Cap: US\$1,437m

Fraser and Neave operates in the consumer staples space with a 2023 PE of 14.7x, offering a solid valuation. However, detailed metrics for 2025 remain unavailable. Despite this, FNN’s steady market presence underlines its position as a key competitor.

Delfi (DELFI SP)

Trading Price: S\$0.76

Market Cap: US\$340m

Delfi is trading at a 2025F PE of 8.8x, lower than the regional average, making it an appealing value proposition. The company also offers an attractive dividend yield of 7.1% and maintains a low net gearing of -8.7%. Its ROE stands at 13.6%, highlighting decent profitability.

Yeo Hiap Seng (YHS SP)

Trading Price: S\$0.565

Market Cap: US\$258m

Yeo Hiap Seng is trading at an exceptionally high 2023 PE of 51.4x, making it significantly overvalued compared to peers. While the company enjoys strong brand recognition, its financial metrics and growth potential lag behind its competitors.

Regional Players

Nestle Malaysia (NESZ MK)

Trading Price: MYR 92.48

Market Cap: US\$4,817m

With a 2025F PE of 35.4x, Nestle Malaysia trades at a premium, underscoring its strong brand equity and market dominance. The company provides a modest dividend yield of 2.7% but faces high net gearing at 192.9%, reflecting significant leverage.

Fraser & Neave Malaysia (FNH MK)

Trading Price: MYR 25.56

Market Cap: US\$2,082m

FNH Malaysia is trading at a 2025F PE of 16.2x, slightly above the regional average. It offers a reasonable dividend yield of 3.0% and maintains low net gearing at -10.4%, positioning itself as a stable player in the market.

Power Root (PWRT MK)

Trading Price: MYR 1.49

Market Cap: US\$142m

Power Root presents an attractive valuation with a 2025F PE of 14.9x and a dividend yield of 4.0%. Its low net gearing of -18.5% and ROE of 12.3% make it a compelling choice for investors seeking value in the regional consumer staples market.

TAC Consumer (TACC TB)

Trading Price: THB 4.32

Market Cap: US\$75m

TAC Consumer is one of the smaller players but offers a strong 2025F PE of 9.7x, an excellent dividend yield of 8.9%, and a remarkable ROE of 35.9%. These metrics make it an outperformer among regional peers.