CGS International
April 17, 2025
Food Empire Holdings: Attractive Dividend Yield Offsets Trade Tension Concerns
AGM Observations and US Market Exposure
We attended the AGM of Food Empire Holdings (FEH) on Thursday, 17 Apr 2025, as an observer. Management indicated that direct sales to the US accounted for less than 0.5% of FY24 group revenue, highlighting that the US is not a key market for the group. [[1]]
Investment Thesis: Attractive Dividend Yield
We believe FEH remains an attractive dividend yield stock, offering 5.9% for FY25F-27F, providing a shelter as the group aims to improve its valuation. We reiterate our Add recommendation. [[1]]
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. Similarly, China is not a primary market. The key markets for FEH’s 3-in-1 coffee mix in FY24 by revenue contribution were: [[1]]
- Russia (30%)
- Ukraine, Kazakhstan, and the CIS (26%)
- Vietnam (16%)
In FY24, beverages (mainly own brand 3-in-1 coffee mix) accounted for 75% of revenue, while the remaining 25% was contributed by potato chip snacks, non-dairy creamer, and soluble coffee powder. [[1]]
Indirect Impact: A More Likely Scenario
A greater 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 prices its products for the mass market, and coffee consumption is relatively stable, so the impact should be manageable. Weaker disposable income could also lead to consumers down-trading from higher-end coffee to more affordable 3-in-1 coffee. [[1]]
Anticipated Better YoY Revenue for 1Q25F
We think FEH managed to raise its average selling price by 10-20% in 2H24, which should positively impact FY25F earnings. Additionally, the Russian ruble has appreciated by 33% against the US\$ in 1Q25, leading to higher revenue from Russia upon forex translation into FEH’s reporting currency of US\$. These factors are likely to result in higher 1Q25F revenue YoY. Last year, FEH reported its 1Q business update (revenue disclosure only) on 9 May. [[1]]
Reiterating Add Recommendation: Defensive Earnings
As a consumer staple company, FEH’s earnings are expected to be more resilient in the current uncertain environment. The current management has navigated the Global Financial Crisis, the first Russia-Ukraine conflict (2014), and the current conflict. We reiterate our Add recommendation, believing that FY25-27F EPS growth will be driven by its staple 3-in-1 coffee mix business and capacity expansion in its food ingredients business. Our valuation basis remains at 11.2x FY26F P/E, 1.0 s.d. above its 5-year mean (2019-23). [[1]]
Potential dividend yield of 5.9% for FY25-27F is also attractive, in our view. Key re-rating catalysts: [[1]]
- 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: [[1]]
- 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
Rating: ADD (no change) [[1]]
Consensus ratings*: Buy 5 Hold 0 Sell 0 [[1]]
Current price: S\$1.33 [[1]]
Target price: S\$1.71 [[1]]
Previous target: S\$1.71 [[1]]
Up/downside: 28.6% [[1]]
CGSI / Consensus Tp: 24.4% [[1]]
Reuters: FEMP.SI [[1]]
Bloomberg: FEH SP [[1]]
Market cap: US\$533.2m / S\$700.8m [[1]]
Average daily turnover: US\$0.93m / S\$1.23m [[1]]
Current shares o/s: 533.8m [[1]]
Free float: 39.8% [[1]]
Major shareholders % held: [[1]]
- Universal Integrated Corp 24.9
- Tan Guek Ming 12.9
- Nair Sudeep 12.4
Key changes in this note: No changes. [[1]]
Price performance: [[1]]
- 1M Absolute (%): 1.5, Relative (%): 5.7
- 3M Absolute (%): 33.7, Relative (%): 35.1
- 12M Absolute (%): 0.8, Relative (%): -27.8
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% |
|
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% |
| % Change In Core EPS Estimates |
|
|
0% |
0% |
|
| EPS/Consensus EPS (x) |
|
|
0.99 |
0.98 |
1.00 |
Peer Comparison
Figure 1 provides a peer comparison of Food Empire Holdings Ltd. with other companies in the sector. [[2]]
| 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 |
|
|
|
|
|
7.8 |
7.0 |
4.7% |
0.93 |
0.86 |
2.9% |
3.2% |
NOTE: FORECASTS FOR NOT RATED COMPANIES ARE BLOOMBERG CONSENSUS ESTIMATES [[2]]
DATA AS AT 17 Apr 2025 [[2]]
ESG Analysis: Food Empire Holdings
Food Empire Holdings (FEH) is a food and beverage company headquartered in Singapore. As of Mar 2025, LSEG has not issued an ESG score for Food Empire Holdings. [[3]]
Country Concentration Risk
Russia and Ukraine are FEH’s key markets. In FY24, Russia accounted for 30% of FEH’s total revenue, while Ukraine made up 7%. Together, Russia and Ukraine accounted for 37% of its FY24 revenue. In FY24, 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. [[3]]
ESG Highlights
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 labeling. [[3]]
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. [[3]]
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. [[3]]
FEH has set perpetual targets of: [[3]]
- Zero confirmed incidents of non-compliance with all applicable laws and regulations concerning consumer health and safety
- Zero confirmed incidents of non-compliance with applicable regulations concerning product information and labelling
In FY24, FEH was able to achieve both targets. [[3]]
Trends
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. [[3]]
As of 2024, Food Empire Vietnam (FEV) has implemented energy-saving actions to reduce 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. [[3]]
Financials: By the Numbers
P/BV vs ROE
Rolling P/BV (x) (lhs) ROE (rhs) [[4]]
12-mth Fwd FD Core P/E vs FD Core EPS Growth
12-mth Fwd Rolling FD Core P/E (x) (lhs) FD Core EPS Growth (rhs) [[4]]
Profit & Loss (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) |
| 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 (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) |
| 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 |
| 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) |
| 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 (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 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 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 |
Recommendation Framework
Stock Ratings Definition: [[10]]
- Add: The stock’s total return is expected to exceed 10% over the next 12 months.
- Hold: The stock’s total return is expected to be between 0% and positive 10% over the next 12 months.
- Reduce: The stock’s total return is expected to fall below 0% or more over the next 12 months.
The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months. [[10]]
Sector Ratings Definition: [[10]]
- Overweight: An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
- Neutral: A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
- Underweight: An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.
Country Ratings Definition: [[10]]
- Overweight: An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
- Neutral: A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
- Underweight: An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.
Rating Distribution (%) Inv estment Banking clients (%)
|
|
|
| Add |
71.0% |
1.3% |
| Hold |
20.9% |
0.7% |
| Reduce |
8.2% |
0.4% |
Distribution of stock ratings and inv estment banking clients for quarter ended on 31 March 2025 [[10]]
551 companies under cov erage for quarter ended on 31 March 2025 [[10]]
