Coffee manufacturer and distributor Food Empire announced in its business update that it has achieved a revenue of US$286.0 million in 9MFY2022, a y-o-y increase of 26.5% as compared to US$226.1 million in 9MFY2021.

 

The increase was across all segments particularly from the group&rsquo s South Asia segment. On a quarterly basis, the group&rsquo s revenue for 3QFY2022 increased by 42.1% to US$108.6 million mainly from the group&rsquo s Russia and South Asia segments.

 

The group&rsquo s net profit after tax for 9MFY2022 increased by US$35.1 million or 240.9% y-o-y to US$49.6 million. For 3QFY2022, the group&rsquo s net profit after tax increased from US$3.1 million in 3QFY2021 to US$22.6 million. This was mainly attributable to higher average selling prices across most of the group&rsquo s business segments coupled with one-off gain of US$15.0 million from the disposal of non-core asset.

 

The group generated net operating cash flows of US$39.6 million in 9MFY2022 as compared to US$10.2 million in 9MFY2021. Together with the sale proceeds from the non-core asset, cash and cash equivalents stood at US$107.1 million as at Sept 30.

 

In the group&rsquo s Russian, Kazakhstan and Commonwealth of Independent States (CIS) segments, the group is monitoring market and political developments closely and continues to maintain an adequate level of inventory to ensure minimum disruptions in operations.

 

In the group&rsquo s Ukraine market, supply chain challenges continue due to the on-going conflict and it is monitoring the situation closely.

 

In the South-East Asia segment, the group will increase its advertising and promotion activities and expects consumer demand to remain strong.

 

In Malaysia, where the group operates non-dairy creamer (NDC), snacks and instant coffee-mix production facilities, demand has remained resilient despite inflationary pressures. It has been able to optimise production and show profit growth. In particular, the snack segment had significant sales increase from Southeast Asia. The group aims to achieve higher economies of scale for its Malaysia operations after the completion of the NDC factory expansion by 2024.

 

In India, both the group&rsquo s spray dry and freeze dry coffee plants continue to witness strong international demand. Both the plants are operating at near maximum capacity as the group strives to optimise capacity utilisation.

 

See also: UnUsUaL is back in the black for 1HFY2023 with earnings of $1.1 mil

 

Overall, the group believes that it has demonstrated resilience despite the challenging operating environment and will strive to deliver growth. Backed by strong fundamentals and a healthy financial position, the board is optimistic of the group&rsquo s long-term prospects.

RHB Group Research analyst Jarick Seet has kept his &ldquo buy&rdquo call on Food Empire as the company reported PATMI or earnings of US$27.1 million ($37.2 million) for the 1HFY2022 ended June, 134.4% higher y-o-y.

 

The higher earnings, which came despite the ongoing conflict in Ukraine, have proven Food Empire&rsquo s doubters wrong, writes Seet.

 

In addition, the higher earnings have validated the company&rsquo s diversified revenue streams and &ldquo resilient business model&rdquo .

 

&ldquo Food Empire has managed to diversify its revenue stream from Russia over the years, and revenue from other markets is now more than 50% of the total revenue (as of 1HFY2022) &ndash even while it continues to see growth from its Russian market,&rdquo Seet writes.

 

&ldquo That said, we believe that Food Empire&rsquo s business will remain resilient in its core markets &ndash the demand for instant mix coffee remains sturdy, even with an ongoing war. In fact, it gives Food Empire an advantage, as foreign competitors are leaving such markets &ndash which would benefit the remaining players. These include Food Empire, which has the largest share of these markets,&rdquo he adds.

 

During the 1HFY2022, Food Empire&rsquo s net profit margin had improved 7.6 percentage points y-o-y to 15.3% after raising the prices of its products and mitigating actions taken to counter the rise in raw material as well as freight costs. Following the stabilised margins, Seet sees management as likely to intensify its marketing efforts to grow its revenue in specific markets going forward.

 

At its current levels, Seet believes the counter is a &ldquo steal&rdquo . &ldquo This counter is trading at just 6x FY2022 P/E,&rdquo he writes.

 

As the analyst expects the company to continue doing well despite the war in Ukraine, Seet has raised his FY2022 PATMI estimates by 30%. However, the analyst has noted the risk of the conflict and has lowered his pegged target price P/E to 10x from 13x.

 

Continuing his positive outlook, Seet says, &ldquo The asset sale of its current industrial property ($49.25 million) should also boost [Food Empire&rsquo s] balance sheet and cash position. In addition, management will start to buy back shares with the excess cash, once the asset sale is completed.&rdquo

 

On the environmental, social and governance (ESG) front, Seet has derived a score of 3.0, which is on par with the country median. The score has contributed a 0% discount or premium to his target price.