Brokers' take: RHB places Food Empire under review amid Russia-Ukraine crisis

POTENTIAL impacts from Russia's invasion of Ukraine have prompted RHB Research to place Food Empire Holdings F 03 under review.

The food and beverage manufacturer, whose largest market is Russia, was previously rated "buy" by RHB with a S$1.01 target price and expectations of a continued recovery for the group's margins.

Food Empire has manufacturing facilities in both Russia and Ukraine.

Last Thursday (Feb 24), it posted 17.5 per cent higher revenue of US$320.6 million as contributions from Russia grew 15.4 per cent. Net profit however dipped 27.2 per cent on the back of higher commodity costs and ocean freight rates, which resulted in lower margins.

In a report dated Feb 28, RHB analyst Jarick Seet said the potential depreciation of the Russian rouble could negatively impact Food Empire's margins, which improved recently over Q4 of FY2021 compared with the previous quarter due to management efforts to raise prices and lower freight rates.

"The current raft of sanctions are unlikely to have a direct or immediate impact on Food Empire's business in these markets. However, the adverse impact on the volatility of FX rates of these currencies could further negatively impact the company's margins," said Seet.

The analyst also believes Food Empire may experience difficulties accessing its cash in Russia should the country be removed from the Swift banking system as a result of its sanctions.

Any further deepening of sanctions may impact the group as well, he added.

"That being said, management remains confident on the consumer demand for all of its markets, including those in Russia and the Ukraine, as the last conflict in the Crimean Peninsula actually improved the demand in these markets," observed the analyst.

"With these uncertainties on current and future potential sanctions as well as how this conflict may develop, we place Food Empire under review while awaiting for more clarity on the situation."

Shares of Food Empire were trading S$0.06 or 10.3 per cent lower at S$0.52 as at the midday break on Monday.

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