- We remain positive on Food Empire (SGX:F03) despite recent increase in coffee prices and earnings cut due to higher input costs.
- We like Food Empire for its strong balance sheet, cash generation ability, market share traction, valuation, and share buyback initiative. Growth continues to be driven by capacity expansion of its ingredients business.
- - Read this at SGinvestors.io -
Higher coffee prices to dampen margins slightly.
- Since 2H23, coffee prices increased ~26% from US$179/lb to ~US$245/lb currently. As Food Empire’s main input is coffee, a sustained coffee price at current levels could see some pressure on margins going forward.
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- We reduce our gross margin assumption from 33.5% to 33% going forward – higher than previously given that it now has a stronger product portfolio vs FY22. That said, Food Empire is a brand company which can implement resizing (number of sachets) and repricing strategies to mitigate higher raw material prices.
- Our FY24-26F earnings forecast for Food Empire is consequently lowered by 3% each.
Marketing, brand building, and higher production to drive growth going forward.
- Read more at SGinvestors.io.
