CGS International
April 17, 2025
Food Empire Holdings: Attractive Dividend Yield Offsets Trade Tension Concerns
AGM Insights and Strategic Outlook
We attended the AGM of Food Empire Holdings (FEH) as an observer on Thursday, 17 Apr 2025. Management reassured that direct sales to the US accounted for less than 0.5% of FY24 group revenue, indicating minimal impact from US-China trade tensions. The US is not a key market for the group. We maintain an Add recommendation, emphasizing FEH as an attractive dividend yield stock (5.9% for FY25F-27F) to shelter in as the group seeks to improve its valuation.
Minimal Direct Impact from US-China Trade War
The US is not a key market for FEH, representing less than 0.5% of FY24 revenue. China is also not a primary market. Key markets for FEH’s 3-in-1 coffee mix in FY24, based on revenue contribution, were Russia (30%), Ukraine, Kazakhstan and the CIS (26%), and Vietnam (16%). Beverages, mainly own-brand 3-in-1 coffee mix, comprised 75% of revenue, with the remaining 25% from potato chip snacks, non-dairy creamer, and soluble coffee powder.
Potential Indirect Impacts and Mitigation Strategies
The more significant risk to FEH’s earnings outlook could stem from slower economic growth in Vietnam, potentially reducing demand and revenue upon forex translation if the Vietnamese Dong weakens against the US\$. However, FEH’s mass-market pricing strategy and the relatively stable demand for coffee are expected to mitigate this impact. A shift from higher-end coffee to more affordable 3-in-1 options could also occur due to weaker disposable income, benefiting FEH.
Anticipated Revenue Improvement in 1Q25F
FEH’s average selling price increased by 10-20% in 2H24, which is expected to positively influence FY25F earnings. Additionally, the Russian ruble’s appreciation by 33% against the US\$ in 1Q25 should boost revenue from Russia upon forex translation into US\$. These factors suggest a higher 1Q25F revenue yoy. The 1Q business update (revenue disclosure only) was reported on 9 May last year.
Investment Thesis: Defensive Earnings and Growth Catalysts
FEH’s classification as a consumer staple company suggests greater earnings resilience amid current uncertainties. The management’s experience in navigating past crises, including the Global Financial Crisis and previous Russia-Ukraine conflicts, reinforces confidence. We reiterate an Add rating due to anticipated FY25-27F EPS growth, driven by the 3-in-1 coffee mix business and capacity expansion in food ingredients. Our valuation is based on 11.2x FY26F P/E, 1.0 s.d. above its 5-year mean (2019-23). A potential dividend yield of 5.9% for FY25-27F is also attractive.
Key Catalysts and Risks
Key re-rating catalysts:
- Improving operating margins on stabilising market demand.
- Sustained market share in its key market, Russia.
- A resolution to the Russia-Ukraine conflict.
Key downside risks:
- An escalation in the Russia-Ukraine conflict affecting its Russian operations.
- Ruble’s depreciation vs. the US\$, leading to lower revenue in US\$ terms.
Investment Summary
Stock: Food Empire Holdings Ltd
Rating: ADD (no change)
Consensus ratings*: Buy 5 Hold 0 Sell 0
Current price: S\$1.33
Target price: S\$1.71
Previous target: S\$1.71
Up/downside: 28.6%
CGSI / Consensus Tp: 24.4%
Reuters: FEMP.SI
Bloomberg: FEH SP
Market cap: US\$533.2m / S\$700.8m
Average daily turnover: US\$0.93m / S\$1.23m
Current shares o/s: 533.8m
Free float: 39.8%
*Source: Bloomberg
Major Shareholders (% held)
- Universal Integrated Corp: 24.9
- Tan Guek Ming: 12.9
- Nair Sudeep: 12.4
Financial Summary
| (US\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Revenue |
425.7 |
476.3 |
504.2 |
533.8 |
565.4 |
| Operating EBITDA |
81.75 |
74.96 |
81.13 |
89.28 |
97.95 |
| Net Profit |
56.51 |
52.53 |
53.87 |
58.52 |
62.92 |
| Core EPS (US\$) |
0.11 |
0.09 |
0.10 |
0.11 |
0.12 |
| Core EPS Growth |
21.2% |
(11.4%) |
8.4% |
8.6% |
7.5% |
Key Financial Ratios
| Ratio |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| FD Core P/E (x) |
9.49 |
10.71 |
9.88 |
9.10 |
8.46 |
| DPS (US\$) |
0.075 |
0.060 |
0.060 |
0.060 |
0.060 |
| Dividend Yield |
7.37% |
5.90% |
5.90% |
5.90% |
5.90% |
| EV/EBITDA (x) |
5.29 |
6.38 |
5.79 |
5.09 |
4.43 |
| P/FCFE (x) |
14.24 |
79.42 |
13.12 |
11.41 |
10.14 |
| Net Gearing |
(30.6%) |
(16.2%) |
(17.9%) |
(20.9%) |
(24.7%) |
| P/BV (x) |
1.80 |
1.81 |
1.68 |
1.55 |
1.42 |
| ROE |
19.7% |
16.9% |
17.7% |
17.7% |
17.5% |
Peer Comparison
A comparison against key competitors highlights FEH’s relative positioning in terms of valuation and growth metrics.
| Company |
Ticker |
Recom. |
Price (lcl curr) |
Target Price (lcl curr) |
Market Cap (US\$ m) |
P/E (x) CY25F |
P/E (x) CY26F |
3-year EPS CAGR (%) |
P/BV (x) CY25F |
P/BV (x) CY26F |
Recurring ROE (%) CY25F |
Dividend Yield (%) CY25F |
| Food Empire Holdings Ltd |
FEH SP |
Add |
1.33 |
1.71 |
533 |
9.9 |
9.1 |
8.2% |
1.68 |
1.55 |
17.7% |
5.9% |
| Delfi Ltd |
DELFI SP |
Add |
0.71 |
0.88 |
328 |
13.9 |
12.0 |
4.7% |
1.54 |
1.45 |
5.8% |
4.7% |
| Japfa Ltd |
JAP SP |
Hold |
0.62 |
0.62 |
888 |
9.0 |
8.5 |
na |
1.18 |
1.06 |
2.4% |
3.2% |
| Thai Beverage |
THBEV SP |
Reduce |
0.50 |
0.58 |
9,560 |
0.5 |
0.4 |
na |
0.08 |
0.07 |
0.5% |
1.6% |
Simple average excluding Food Empire: P/E (x) CY25F 7.8, P/E (x) CY26F 7.0, 3-year EPS CAGR (%) 4.7%, P/BV (x) CY25F 0.93, P/BV (x) CY26F 0.86, Recurring ROE (%) CY25F 2.9%, Dividend Yield (%) CY25F 3.2%
ESG Considerations
Food Empire Holdings (FEH) is headquartered in Singapore. LSEG has yet to issue an ESG score for Food Empire Holdings as at Mar 2025.
Country Concentration Risk
- Russia and Ukraine are key markets. In FY24, Russia accounted for 30% of FEH’s total revenue, while Ukraine made up 7% of its total revenue. Together, Russia and Ukraine accounted for 37% of its FY24 revenue.
- Russia remained the largest single country revenue contributor for FEH at 30% of group revenue.
- FEH has been making efforts to diversify its dependence on the Russia/Ukraine markets via building up its 3-in-1 coffee mix business in Vietnam, and food ingredients production business in India and Malaysia.
ESG Highlights and Product Safety
- As a food and beverage company, FEH’s paramount concern is product safety.
- FEH places significant emphasis on ensuring that its products are safe for consumption with no inaccurate labelling.
- Any mismanagement of FEH’s products can result in a loss of reputation, financial penalties, and possible breach of product safety laws in affected markets for FEH.
- Breach of product safety can also have serious effects on consumer well-being, for example by causing food poisoning or other related illnesses.
- FEH has established quality and food safety standards that meet or exceed statutory and regulatory requirements.
- The group has also developed and implemented its own Quality Management System and Product Safety System, both of which have been validated internally as well as by external independent inspectors.
- FEH has set perpetual targets of a) zero confirmed incidents of non-compliance with all applicable laws and regulations concerning consumer health and safety, and b) zero confirmed incidents of non-compliance with applicable regulations concerning product information and labelling. In FY24, FEH was able to achieve both targets.
Trends in Greenhouse Gas Emissions
- Studies estimate that 25-35% of global greenhouse gas emissions are from food and agriculture.
- As a food manufacturing business, FEH recognizes the importance of improving resource use efficiency and reducing emissions throughout its global operations and value chain.
- As of 2024, Food Empire Vietnam (FEV) has implemented energy-saving actions with the purpose of reducing electricity consumption and emissions.
- FEV has successfully installed day/night light switching systems, solar electricity for its factory perimeter lights, sky lights in its warehouses, and energy-saving LED lamps.
Historical Financial Performance and Projections
Analysis of key financial metrics including P/BV vs ROE and 12-mth Fwd FD Core P/E vs FD Core EPS Growth.
Profit & Loss Analysis (US\$m)
| (US\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Total Net Revenues |
425.7 |
476.3 |
504.2 |
533.8 |
565.4 |
| Gross Profit |
152.3 |
156.1 |
164.3 |
174.5 |
185.3 |
| Operating EBITDA |
81.7 |
75.0 |
81.1 |
89.3 |
97.9 |
| Depreciation And Amortisation |
(10.8) |
(11.7) |
(13.0) |
(14.3) |
(15.7) |
| Operating EBIT |
70.9 |
63.3 |
68.1 |
74.9 |
82.3 |
| Financial Income/(Expense) |
0.8 |
(0.3) |
(1.4) |
(1.4) |
(1.7) |
| Pretax Income/(Loss) from Assoc. |
1.3 |
(0.5) |
0.0 |
0.0 |
(0.5) |
| Non-Operating Income/(Expense) |
(0.6) |
(0.2) |
1.0 |
0.0 |
(1.0) |
| Profit Before Tax (pre-EI) |
72.5 |
62.4 |
67.8 |
73.6 |
79.1 |
| Exceptional Items |
2.8 |
|
|
|
|
| Pre-tax Profit |
72.5 |
65.2 |
67.8 |
73.6 |
79.1 |
| Taxation |
(16.0) |
(12.3) |
(13.6) |
(14.7) |
(15.8) |
| Exceptional Income – post-tax |
|
|
|
|
|
| Profit After Tax |
56.5 |
52.9 |
54.2 |
58.9 |
63.3 |
| Minority Interests |
0.0 |
(0.3) |
(0.3) |
(0.3) |
(0.3) |
| Preferred Dividends |
|
|
|
|
|
| FX Gain/(Loss) – post tax |
|
|
|
|
|
| Other Adjustments – post-tax |
|
|
|
|
|
| Preference Dividends (Australia) |
|
|
|
|
|
| Net Profit |
56.5 |
52.5 |
53.9 |
58.5 |
62.9 |
| Recurring Net Profit |
56.5 |
49.7 |
53.9 |
58.5 |
62.9 |
| Fully Diluted Recurring Net Profit |
56.5 |
49.7 |
53.9 |
58.5 |
62.9 |
| Normalised Net Profit |
56.5 |
50.0 |
54.2 |
58.9 |
63.3 |
| Fully Diluted Normalised Profit |
56.5 |
49.7 |
53.9 |
58.5 |
62.9 |
Cash Flow Analysis (US\$m)
| (US\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| EBITDA |
81.75 |
74.96 |
81.13 |
89.28 |
97.95 |
| Cash Flow from Invt. & Assoc. |
(1.34) |
0.50 |
0.00 |
0.00 |
0.50 |
| Change In Working Capital |
(16.38) |
(38.30) |
(6.53) |
(6.95) |
(7.41) |
| Other Operating Cashflow |
1.73 |
0.40 |
0.90 |
0.42 |
(1.04) |
| Net Interest (Paid)/Received |
0.80 |
(0.26) |
(1.36) |
(1.36) |
(1.70) |
| Tax Paid |
(12.70) |
(11.78) |
(13.55) |
(14.71) |
(15.81) |
| Cashflow From Operations |
53.86 |
25.52 |
60.59 |
66.67 |
72.49 |
| Capex |
(12.16) |
(24.43) |
(20.00) |
(20.00) |
(20.00) |
| Disposals Of FAs/subsidiaries |
0.00 |
0.25 |
0.00 |
0.00 |
0.00 |
| Other Investing Cashflow |
(0.21) |
4.39 |
0.00 |
0.00 |
0.00 |
| Cash Flow From Investing |
(12.37) |
(19.79) |
(20.00) |
(20.00) |
(20.00) |
| Debt Raised/(repaid) |
(3.85) |
0.97 |
0.00 |
0.00 |
0.00 |
| Proceeds From Issue Of Shares |
1.11 |
3.13 |
0.00 |
0.00 |
0.00 |
| Shares Repurchased |
(7.60) |
(6.20) |
0.00 |
0.00 |
0.00 |
| Dividends Paid |
(17.29) |
(39.16) |
(31.41) |
(31.41) |
(31.41) |
| Other Financing Cashflow |
(3.91) |
35.52 |
0.00 |
0.00 |
0.00 |
| Cash Flow From Financing |
(31.54) |
(5.74) |
(31.41) |
(31.41) |
(31.41) |
| Total Cash Generated |
9.95 |
0.00 |
9.18 |
15.26 |
21.07 |
| Free Cashflow To Equity |
37.65 |
6.70 |
40.59 |
46.67 |
52.49 |
| Free Cashflow To Firm |
45.03 |
9.97 |
46.29 |
52.37 |
58.19 |
Balance Sheet Analysis (US\$m)
| (US\$m) |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Total Cash And Equivalents |
131.3 |
130.9 |
140.0 |
155.3 |
176.4 |
| Total Debtors |
42.4 |
54.0 |
56.9 |
60.0 |
63.3 |
| Inventories |
76.7 |
110.8 |
118.0 |
124.9 |
132.3 |
| Total Other Current Assets |
7.9 |
10.1 |
10.1 |
10.1 |
10.1 |
| Total Current Assets |
258.3 |
305.7 |
325.0 |
350.3 |
382.0 |
| Fixed Assets |
114.9 |
131.3 |
138.3 |
144.0 |
148.3 |
| Total Investments |
12.6 |
8.5 |
8.5 |
8.5 |
8.0 |
| Intangible Assets |
8.8 |
10.2 |
10.2 |
10.2 |
10.2 |
| Total Other Non-Current Assets |
8.3 |
4.4 |
4.4 |
4.4 |
4.4 |
| Total Non-current Assets |
144.6 |
154.4 |
161.4 |
167.0 |
170.9 |
| Short-term Debt |
17.2 |
30.3 |
30.3 |
30.3 |
30.3 |
| Total Creditors |
53.5 |
62.1 |
65.7 |
69.2 |
72.9 |
| Other Current Liabilities |
6.2 |
7.0 |
7.0 |
7.0 |
7.0 |
| Total Current Liabilities |
76.8 |
99.3 |
103.0 |
106.5 |
110.2 |
| Total Long-term Debt |
23.9 |
52.6 |
52.6 |
52.6 |
52.6 |
| Total Other Non-Current Liabilities |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
| Total Non-current Liabilities |
23.9 |
52.6 |
52.6 |
52.6 |
52.6 |
| Total Provisions |
7.7 |
12.1 |
12.1 |
12.1 |
12.1 |
| Total Liabilities |
108.4 |
164.0 |
167.6 |
171.1 |
174.8 |
| Shareholders’ Equity |
295.6 |
293.8 |
316.3 |
343.4 |
374.9 |
| Minority Interests |
(1.1) |
2.3 |
2.6 |
3.0 |
3.3 |
| Total Equity |
294.5 |
296.1 |
318.9 |
346.3 |
378.2 |
Key Financial Ratios and Drivers
| Key Ratios |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Revenue Growth |
6.9% |
11.9% |
5.8% |
5.9% |
5.9% |
| Operating EBITDA Growth |
29.3% |
(8.3%) |
8.2% |
10.0% |
9.7% |
| Operating EBITDA Margin |
19.2% |
15.7% |
16.1% |
16.7% |
17.3% |
| Net Cash Per Share (US\$) |
0.17 |
0.09 |
0.11 |
0.14 |
0.18 |
| BVPS (US\$) |
0.56 |
0.56 |
0.60 |
0.65 |
0.71 |
| Gross Interest Cover |
20.04 |
14.93 |
11.95 |
13.15 |
14.43 |
| Effective Tax Rate |
22.1% |
18.9% |
20.0% |
20.0% |
20.0% |
| Net Dividend Payout Ratio |
69.5% |
63.2% |
58.3% |
53.7% |
49.9% |
| Accounts Receivables Days |
29.85 |
33.69 |
36.93 |
36.95 |
36.94 |
| Inventory Days |
100.6 |
107.1 |
122.8 |
123.3 |
123.5 |
| Accounts Payables Days |
65.49 |
60.30 |
61.83 |
62.11 |
62.18 |
| ROIC (%) |
37.7% |
31.7% |
27.1% |
28.3% |
29.7% |
| ROCE (%) |
22.5% |
18.3% |
18.0% |
18.5% |
18.9% |
| Return On Average Assets |
14.2% |
11.7% |
11.7% |
12.0% |
12.1% |
| Key Drivers |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Revenue growth |
(3.5) |
(1.1) |
5.0 |
5.0 |
5.0 |
