Food Empire Holdings is expecting to see &ldquo significantly higher&rdquo profit after tax for the 1HFY2022 ended June. This will be mainly attributable to a better operating profit for the period on the back of higher average selling prices (ASPs).

 

The higher profit after tax for the period is also due to the higher currency exchange gain, as well as an increase in share of profit from an associated company, says Food Empire in its July 28 statement.

 

The group says it is still in the midst of finalising its results for the half-year period. It expects to release its unaudited financial statements on or around Aug 11.

RHB Group Research is keeping its &ldquo buy&rdquo recommendation on Food Empire with a target price of 95 cents, as analyst Jarick Seet believes that the group&rsquo s latest 1QFY2022 ended March results has quelled all doubts of the group&rsquo s position amid the ongoing Russia-Ukraine crisis, of which both markets are Food Empire&rsquo s main markets.

 

To recap, Food Empire recorded net profit after tax (NPAT) of US$9.2 million ($12.7 million) for 1QFY2022, some 34.4% higher y-o-y, thanks to higher average selling prices (ASPs), lower selling and marketing expenses, as well as higher share of associated profit despite the higher exchange losses.

 

Revenue was 7.6% higher y-o-y at US$82.6 million, largely due to the contribution from the group&rsquo s freeze dry coffee business in South Asia, which began operations in the 2QFY2021. Looking at the revenues segmented by markets, it was no surprise that its main markets of Russia, Ukraine, Kazakhstan and the Commonwealth of Independent States (CIS) declined slightly by about 6%, but luckily, this was offset by a 233.1% surge in the group&rsquo s South East Asia market.

 

While the group is concerned about its business environment in Russia and Ukraine and expects it to remain challenging moving forward due to the ongoing war, it continues to see a positive growth momentum in Southeast Asia, especially its Vietnam and Malaysia markets.

 

RHB analyst Jarick Seet says: &ldquo We have confidence in the resilience of Food Empire&rsquo s business, and believe this consumer staples counter offers investors a sweet bargain &ndash it is trading at just 7.2x FY2022 P/E.&rdquo

 

&ldquo We believe that Food Empire&rsquo s 1QFY2022 results should quash any doubts over the strength and diversification of its business. We expect it to continue doing well, despite the Russia-Ukraine war &ndash with a recovery in margins being imminent,&rdquo adds Seet.

 

Seet also noted that despite the slight decline in revenue from Russia, Ukraine, Kazakhstan and the CIS markets, demand has remained relatively firm. The business situation may be challenging for this period, but Seet sees a longer term advantage. &ldquo We believe that Food Empire&rsquo s business continues to be 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 players that stayed. These include Food Empire, which has the largest share of these markets.&rdquo

 

Meanwhile, Southeast Asia shows promising and strong growth, mainly due to the strong contribution from the group&rsquo s freeze-dried coffee plant in India which commenced operations in 2QFY2021, and the strong rebound in demand from Vietnam due to its economic reopening.

 

As of 1QFY2022, other markets already account for 47.8% of the group&rsquo s total revenue &ndash which further signifies that the group&rsquo s business has diversified well beyond just its main markets of Russia and Ukraine.

 

See also: Sarine gets an upgrade by DBS as growing trade revenues expect to lift margins

 

Due to the abovementioned factors, Seet has upgraded FY2022 earnings estimates by 10% but has lowered P/E to 13x from 15x to factor in the ongoing Russia-Ukraine conflict.