Food Empire guides for higher profits; Maybank says special dividend likely

FOOD Empire on Monday (Feb 13) said it expects its FY2022 profit after tax to be substantially higher than a year ago, according to a preliminary review of unaudited consolidated financial statements for the year ended December 2022.

The increase was mainly driven by better operating profit and one-off gain from the disposal of a non-core asset.

Maybank Securities has initiated coverage on Food Empire : F03 0% with a “buy” call and a target price of S$1.20, which is based on a price-to-earnings ratio of 11 times FY2023 earnings estimates. 

In a Feb 10 report, Maybank analysts expressed confidence that the instant beverage maker will pay its shareholders a special dividend that will bring the group’s total payout for FY2022 to S$0.04. 

The projected payout is up from S$0.022 for the previous year, and implies a yield of about 5.6 per cent.

It comes as the research house is projecting record profits for Food Empire in FY2022, after booking contributions from the recent sale of its industrial unit last year. 

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The analysts also highlighted that Food Empire could be an attractive takeover target for its larger competitors, given the company’s low valuations and that it is trading at a steep discount compared to its global peers. 

They further underscored the company’s market leadership position in the 3-in-1 beverage space, as well as its strong presence in Russia and Vietnam. 

Commenting on the substantial share buyback activity over the last two years for as high as S$0.82 per share, the analysts say this trend is likely to continue. 

“We strongly believe in the phrase ‘putting your money where your mouth is’, and this has been reflected in Food Empire’s corporate share buyback activities in the past two years,” they said. 

The analysts like the stock for its resilience even throughout geopolitical uncertainties, as demonstrated by its strong 9M FY2022 financials despite the Russia-Ukraine war. 

While they noted that Food Empire’s valuation “took a huge hit” when the war broke out, they believe a ceasefire or the end of the conflict could result in a major stock rerating. 

The group is also reducing its reliance on Russia and diversifying its revenue sources, they noted.

“Food Empire’s business model has shown its resilience and should continue to enjoy decent growth going forward,” they added.

The company expects to announce its H2 and full-year results on or around Feb 27.

Shares of Food empire were trading at S$0.78, up S$0.015 or 2 per cent, as at 2.20 pm on Monday.