Food Empire - UOB Kay Hian 2024-09-04: Margins Hampered By High Coffee Costs & Excess Inventory; Downgrade To HOLD

• Food Empire (SGX:F03) reported PATMI of US$23.6m (-11.3% y-o-y) for 1H24, accounting for 51% of our full-year forecast and in line with expectations.
• The y-o-y decline is largely attributable to short-term price disruptions in the Russia market, and increased raw material prices and operating costs. This was partially offset by higher contributions from all other operating markets. As a result, 1H24 gross and net margins slumped 5ppt y-o-y and 3ppt y-o-y to 30% and 10.5% respectively, matching our expectations.

Double-digit revenue growth across core markets...

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• Sales in South Asia was driven by higher pricing due to cost pass-through, while sales in Southeast Asia was boosted by leading sales in Vietnam and strong demand in Malaysia. The Ukraine, Kazakhstan, and CIS regions also achieved notable growth, with a 15.7% y-o-y increase to US$57.3m on higher sales volume.

… with the exception of Russia which was impacted by currency devaluation and high inventory levels.

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• We note that in local currency terms, the segment saw a substantial 13.4% y-o-y growth, due to increased promotions.

Continued margin pressure from higher coffee prices.

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John Cheong UOB Kay Hian Research | Heidi Mo UOB Kay Hian | https://research.uobkayhian.com/ 2024-09-04 SGinvestors.io

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