SGX Market Strategist, Equity & Fixed Income, Singapore Exchange Ltd (SGX)

Geoff Howie

SGX Market Strategist, Equity & Fixed Income

Asia’s leading multi-asset exchange

Singapore Exchange Ltd (SGX)

Singapore Exchange is Asia’s leading and trusted market infrastructure, facilitating the exchange of capital and ideas to create value for people, businesses and economies. As a multi-asset exchange operating equity, fixed income and derivatives markets to the highest regulatory standards, SGX is a vertically integrated business that provides listing, trading, clearing, settlement, depository and data services.

With about 40% of listed companies and over 80% of listed bonds originating outside of Singapore as well as established linkages across the region and in Europe, SGX is Asia’s most international and connected exchange. Offering a full suite of derivatives products across Asian equity indices, commodities and currencies, SGX is the world’s most liquid international market for the benchmark equity indices of China, India, Japan and ASEAN.

As Asia’s pioneering central counterparty, SGX is globally recognised for its risk management and clearing capabilities, and was one of the first globally to adopt the Principles for Financial Market Infrastructure.

Headquartered in AAA-rated Singapore, SGX has over 800 employees including offices in Beijing, Chicago, Hong Kong, London, New York, Mumbai, San Francisco, Shanghai and Tokyo.

Equity Bottom-Up

<p><em><strong>These equity research reports are not written by the SGX.</strong> SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p><div>
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<p>INITIATION</p>
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<h2>FOOD EMPIRE HOLDINGS LIMITED</h2>
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<p><strong>Executive Summary</strong></p>
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<p>Despite the attractive valuations and favorable macros surrounding Food Empire Holdings, the heavy uncertainty and economic impact surrounding COVID-19 is still unable to be quantified. We believe that a second wave of infections may also be likely considering that a vaccine will need some time to be released. As such, we initiate coverage on Food Empire Holdings with a ACCUMULATE recommendation and a TP of $0.63, representing an upside potential of 22.3%. However, post COVID-19, a recovery of business conditions and confidence may plausibly warrant a future re-rating of the counter. With CEO Sudeep Nair at the helm, we like that Food Empire has successfully turned their Vietnam business around, with revenue growing at an astonishing CAGR of 59.8% within the past 6 years. The reduction of their dependence on Eastern Europe as a main source of revenue has resulted in geographical diversification as well as the discovery of a new driver of growth. With Vietnam’s burgeoning middle class and soluble consumption growth being the highest at 455% amongst its ASEAN peers, we are positive on Food Empire’s growth upon the return of consumer demand post COVID-19. Russia is also Food Empire’s cash cow, as they command c.50% market share within Russia and the CIS markets. Both Russia and Vietnam are expected to contribute to cash flows steadily as Food Empire expands its production capacity. However, short-term volatility of the RUR/USD is to be expected due to demand and supply shocks in the oil markets as well as COVID-19’s devastation of the global economy. As Food Empire turned net cash since 2017, we believe that their strong balance sheet and healthy cash flows will continue supporting them through the tumultuous COVID period. With a dividend yield of 3.9% at the current share price of S$0.515, Food Empire’s current valuations of 7.4x P/E and 0.9x P/B is low with respect to that of its local and global peers. In comparison, Food Empire’s peer Super Group was taken private at a P/E of c.30x in 2017. Initiate ACCUMULATE on Food Empire Holdings with a TP of $0.63.</p>
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These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.







INITIATION




FOOD EMPIRE HOLDINGS LIMITED




Executive Summary




Despite the attractive valuations and favorable macros surrounding Food Empire Holdings, the heavy uncertainty and economic impact surrounding COVID-19 is still unable to be quantified. We believe that a second wave of infections may also be likely considering that a vaccine will need some time to be released. As such, we initiate coverage on Food Empire Holdings with a ACCUMULATE recommendation and a TP of $0.63, representing an upside potential of 22.3%. However, post COVID-19, a recovery of business conditions and confidence may plausibly warrant a future re-rating of the counter. With CEO Sudeep Nair at the helm, we like that Food Empire has successfully turned their Vietnam business around, with revenue growing at an astonishing CAGR of 59.8% within the past 6 years. The reduction of their dependence on Eastern Europe as a main source of revenue has resulted in geographical diversification as well as the discovery of a new driver of growth. With Vietnam’s burgeoning middle class and soluble consumption growth being the highest at 455% amongst its ASEAN peers, we are positive on Food Empire’s growth upon the return of consumer demand post COVID-19. Russia is also Food Empire’s cash cow, as they command c.50% market share within Russia and the CIS markets. Both Russia and Vietnam are expected to contribute to cash flows steadily as Food Empire expands its production capacity. However, short-term volatility of the RUR/USD is to be expected due to demand and supply shocks in the oil markets as well as COVID-19’s devastation of the global economy. As Food Empire turned net cash since 2017, we believe that their strong balance sheet and healthy cash flows will continue supporting them through the tumultuous COVID period. With a dividend yield of 3.9% at the current share price of S$0.515, Food Empire’s current valuations of 7.4x P/E and 0.9x P/B is low with respect to that of its local and global peers. In comparison, Food Empire’s peer Super Group was taken private at a P/E of c.30x in 2017. Initiate ACCUMULATE on Food Empire Holdings with a TP of $0.63.













Non-SGX Report: INITIATION: Food Empire Holdings Limited

<p><em><strong>These equity research reports are not written by the SGX.</strong> SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</em></p><p>COMPANY RESULTS</p>
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<h2>Food Empire Holdings (FEH SP)</h2>
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<p><strong>1Q20: Ahead Of Expectations; Near-term Challenges From Potentially Weaker 2Q</strong></p>
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<p><strong>Food Empire’s core earnings of US$9.5m (+33.0% yoy) was slightly ahead of our expectations, forming 34% of our full-year estimate. Earnings growth was boosted by core net margin expansion of 2.5ppt in 1Q20 and stable revenue growth of 5.0% yoy. The outlook for 2Q20 appears challenging due to the lockdown measures in key markets and the depreciation of the ruble. We do however expect a recovery in 2H20, assuming lockdown measures ease and ASPs rise to mitigate the forex impact. Maintain BUY with a lower PE-based target price of S$0.63.</strong></p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/151/059/original/image_5016598431596734400172.png?1596734403" class="editor-image img-responsive" data-smartkarma-image-id="151059"></figure>
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<p><strong>RESULTS</strong></p>
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<p>• <strong>Results above expectations.</strong> Food Empire reported net profit of US$6.6m for 1Q20. Core net profit (excluding FX loss) came in at US$9.5m (+33.0% yoy), forming 34% of our full year estimate, slightly ahead of our expectation.</p>
<p>• <strong>Strong growth on better margins and steady increase in sales.</strong> Group revenue rose 5.0% yoy in 1Q20 on the back of higher sales in Ukraine, Kazakhstan and other Commonwealth of Independent States (CIS) markets (+23.7% yoy). The strong revenue growth in these markets managed to offset the slightly weaker sales contribution from the Southeast Asia market (-1.7% yoy) due its exit from the Myanmar market which overshadowed the revenue growth from Vietnam. Sales revenue from Russia declined 2.0% yoy, attributed to lower translated revenue resulting from the depreciation of the ruble against the US dollar in Mar 20. Core earnings were further boosted by the increase in core net profit margin to 12.8% (1Q19: 10.5%) as operating expenses remained relatively flat despite the sales growth. Furthermore, gross margin rose slightly to 40.4% (1Q19: 40.2%).</p>
<p>• <strong>Near-term challenges from COVID-19</strong>. The group is experiencing weaker offtake from stores in most of its markets due to lower customer footfall as various governments in key markets have implemented social distancing measures to contain the outbreak. Management remarked that key production, sales and distribution activities are still continuing, albeit with slight disruptions.</p>
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These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.COMPANY RESULTS




Food Empire Holdings (FEH SP)




1Q20: Ahead Of Expectations; Near-term Challenges From Potentially Weaker 2Q




Food Empire’s core earnings of US$9.5m (+33.0% yoy) was slightly ahead of our expectations, forming 34% of our full-year estimate. Earnings growth was boosted by core net margin expansion of 2.5ppt in 1Q20 and stable revenue growth of 5.0% yoy. The outlook for 2Q20 appears challenging due to the lockdown measures in key markets and the depreciation of the ruble. We do however expect a recovery in 2H20, assuming lockdown measures ease and ASPs rise to mitigate the forex impact. Maintain BUY with a lower PE-based target price of S$0.63.





RESULTS




• Results above expectations. Food Empire reported net profit of US$6.6m for 1Q20. Core net profit (excluding FX loss) came in at US$9.5m (+33.0% yoy), forming 34% of our full year estimate, slightly ahead of our expectation.
• Strong growth on better margins and steady increase in sales. Group revenue rose 5.0% yoy in 1Q20 on the back of higher sales in Ukraine, Kazakhstan and other Commonwealth of Independent States (CIS) markets (+23.7% yoy). The strong revenue growth in these markets managed to offset the slightly weaker sales contribution from the Southeast Asia market (-1.7% yoy) due its exit from the Myanmar market which overshadowed the revenue growth from Vietnam. Sales revenue from Russia declined 2.0% yoy, attributed to lower translated revenue resulting from the depreciation of the ruble against the US dollar in Mar 20. Core earnings were further boosted by the increase in core net profit margin to 12.8% (1Q19: 10.5%) as operating expenses remained relatively flat despite the sales growth. Furthermore, gross margin rose slightly to 40.4% (1Q19: 40.2%).
• Near-term challenges from COVID-19. The group is experiencing weaker offtake from stores in most of its markets due to lower customer footfall as various governments in key markets have implemented social distancing measures to contain the outbreak. Management remarked that key production, sales and distribution activities are still continuing, albeit with slight disruptions.





















Non-SGX Report: Food Empire Holdings (FEH SP): 1Q20: Ahead Of Expectations; Near-Term Challenges From Potentially Weaker 2Q

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    <div class='content-caption'>Food Empire CEO</div>
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<p>Food Empire CEO Sudeep Nair’s fortuitous, and somewhat unexpected, career journey – one that spanned three decades – first began with a switch from coding to computers, then to coffee.</p>

<p>A software programmer by training, Nair realised early on that this role wasn’t his cup of tea, and turned to computer equipment sales. It was during one of his buying trips to Bangkok in 1992 that he crossed paths with Food Empire Chairman Tan Wang Cheow, who then was running a consumer electronics dealership. The pair hit it off, and the following year, Nair decided to throw in his lot with Tan.</p>

<p>“Our business focused on exporting electronics goods like disk drives, printers and PCs to Eastern Europe. As it was a pure trading model, operating conditions could be brutal,” Nair recalled.</p>

<p>“It happened that some our distributor contacts were interested in sampling new beverage products, so we brought over some sachets of 3-in-1 coffee mix. After that, trial orders for the coffee mix took off.”</p>

<p>The pair knew the writing was on the wall for consumer electronics distribution, a business plagued by stiff competition and razor-thin margins. “We didn’t want to handle someone else’s brands – we wanted to create something of our own. So after our first test product – a 3-in-1 instant coffee mix – was well-accepted by the market, we knew we had struck gold.”</p>

<p>In 1995, with 40 employees in a small office in Moscow, the MacCoffee brand – which opened up a new world of aromatic flavours for Russian consumers – was born.</p>

<p>For Nair, it was more of a hardship posting. “I was hesitant to move to Moscow,” he admitted.</p>

<p>After the Berlin Wall collapsed in 1989 and the Soviet Union dissolved in 1991, Russia and Eastern Europe was in disarray. “Other colleagues who came over stayed up to a month before quitting, and there was no one else left to do the job.”</p>

<p>Another hurdle was educating the local, predominantly tea-drinking market. “At that time, no one knew much about instant coffee. Thankfully, the locals were game to try new products.”</p>

<p>As Eastern Europe began its transition to a market economy, foreign investments were warmly welcomed. In particular, instant food and beverage products were seen as a novelty.</p>

<p><strong>A Bumpy Road</strong></p>

<p>By 1997, Nair, as Food Empire’s Country Head, had succeeded in laying the foundation for a multi-million-dollar MacCoffee brand, one that took Moscow by storm. “That was our first high,” he added.</p>

<p>However, the low wasn’t far behind. In the summer of the following year, the Russian Financial Crisis struck – oil prices plummeted, bringing the economy down in one fell swoop. The government subsequently devalued the currency and defaulted on its debts.</p>

<p>“That was my first experience managing a crisis. It was a very bad time for everyone – the currency went from 6 roubles to 24 roubles to the dollar, and chaos reigned.”</p>

<p>Fortunately, Russia bounced back in the next two years, thanks to international financial aid and a sharp rebound in oil prices. “Food Empire returned to its growth path from 2000, and that year, we successfully listed on SGX,” recalled Nair, who was appointed Executive Director that same year.</p>

<p>Between 2000 and 2005, the Group expanded rapidly, spreading its wings to the Commonwealth of Independent States (CIS), Ukraine and Kazakhstan.</p>

<p>The next trough, however, was just around the corner. This time, it was the 2009 Global Financial Crisis. By then, the realisation that Food Empire was too dependent on a single geographical market had hit home.</p>

<p>“Our operations were too concentrated in Russia and the CIS, and we saw the urgency of diversifying our revenues out of this region,” he said.</p>

<p>“While it’s easy to talk about diversification, it’s tough to execute. We experimented with various business models, but there were many challenges, and we didn’t make much headway.”</p>

<p>In 2012, Nair was promoted to Chief Executive Officer. Renewing his focus on developing Food Empire’s diversification strategy, he decided to adopt a multi-pronged approach in ASEAN. Myanmar, Vietnam and the Philippines were identified as target markets.</p>

<p>“The ASEAN region has a population of more than 600 million, and is stable politically as well as economically. We had tried to penetrate these three markets through an export and trading model, but failed, because there were too many local players and competition was intense.”</p>

<p><strong>Growing Asia Presence</strong></p>

<p>Instead, Food Empire began investing in people and resources to build its proprietary brands in each geography. Next, it began vertically integrating operations by setting up manufacturing plants in markets like India and Malaysia for key ingredients, such as instant coffee, non-dairy creamer, and later, potato crisps.</p>

<p>“Of the three markets we selected, we achieved clear success in one – Vietnam. We bled for three years and was on the verge of shutting down, but finally, we turned it around,” Nair said.</p>

<p>Over the last five years, Food Empire has grown its Vietnam sales to S$50 million from S$2 million, and secured more than 10% share of the domestic market for instant coffee. “No Singapore company has done that so far in the branded instant coffee industry,” he added.</p>

<p>The Group continues to tweak its blueprint for the Philippines. “Our entry strategy wasn’t quite right, and we’re trying again with a new team and a new direction.”</p>

<p>Myanmar, however, was a failure. “We pulled out of that market last year, largely because of its unstable currency, which has been on the decline. None of the F&amp;B brands in Myanmar have been able to raise prices, and as a result, everyone is grappling with huge margin compression.”</p>

<p>At the same time, Nair kept his pulse on merger and acquisition opportunities. “It took us 15 years to hit revenues of US$200 million through organic growth. We can expedite our next growth phase through M&amp;As.”</p>

<p>But due to stringent criteria, Food Empire has yet to conclude a deal. “We’re seeking a partner or target with a successful business model, preferably in Asia or Western Europe, as we want to diversify out of the Eastern European region. But we haven’t found a candidate who is a good fit.”</p>

<p>One new and immediate challenge is the coronavirus pandemic. “We’ve not seen a direct hit to our supply chain from COVID-19, but consumer demand has been affected as most major economies have slowed down.”</p>

<p>Nonetheless, the Group’s strong balance sheet should provide a buffer, he added. For the year ended 31 December 2019, revenue rose 1.5% year-on-year to US$288.6 million, while net attributable profit jumped 44.9% to US$17.7 million. Cash and cash equivalents rose 29.6% to US$54.7 million as at end-2019.</p>

<p>Today, Food Empire Holdings Ltd produces a wide variety of instant beverages such as regular and flavoured coffee mixes and cappuccinos, chocolate drinks and flavoured fruit teas. It also markets instant breakfast cereal, assorted frozen foods and snack items. Raw ingredients, like instant coffee and non-dairy creamer, are sold to other food manufacturers under its B2B arm.</p>

<p>Proprietary brands include Petrovskaya Sloboda – a domestic coffee brand acquired in 2007, Café PHO, Klassno, CafeRite, NutriRite, Hillway, Hyson, OrienBites and Kracks. Its flagship MacCoffee brand has consistently been ranked as the leading 3-in-1 instant coffee brand in the Group’s core markets of Russia, Ukraine and Kazakhstan.</p>

<p><strong>Coming Into Its Own</strong></p>

<p>The medium-term outlook, meanwhile, remains bright. “We’ve changed Food Empire’s operating model by diversifying our revenue base into Asia, so we’ll have more than one region driving growth,” Nair said.</p>

<p>In 2011, the Group derived only US$25 million in revenue from markets outside Ukraine and the CIS, including Russia. By 2019, this figure had surged to US$108 million, thanks to its expanding Asian operations.</p>

<p>“We’ve built a more solid business by reducing our geographical concentration on Eastern Europe to 63% from 80% previously,” he added.</p>

<p>The Group’s vertically integrated operations – ranging from manufacturing to sales and distribution – also provides added stability.</p>

<p>After nearly 30 years, Food Empire has finally come into its own, Nair noted. “We’re a mid-sized company, not a billion-dollar MNC – it’s been tough to build strong, proprietary brands in each market given our limited resources. But we’ve succeeded, despite the many bumps along the way.”</p>

<p>Looking back on the Group’s milestones, Nair feels a deep satisfaction. “When I was in my mid-20s, financial success was the main goal. Now, in the last 10 years, seeing how Food Empire has evolved – from 40 staff when I joined to more than 3,000 now – it’s about enriching people’s lives, from employees to shareholders and consumers, through the brands and communities we build.”</p>

<p>The 50-year-old, who drinks at least three to four cups of coffee a day, prefers Colombian, Guatemalan and Kenyan beans. His source of inspiration is rooted in a version of the David and Goliath story, where small and medium enterprises are able to hold their own against multinational corporations in the same industry segment.</p>

<p>“I tell my staff – don’t look at the large MNCs out there, focus instead on the small, local businesses which have made their mark.”</p>

<p>His biggest muse, however, is his wife Irina, whom he met in 1995 after moving to Moscow. “At that time, she was in charge of administration and marketing in the office. She was a good source of insight into local consumer trends, and played an integral part in formulating the advertising strategy that eventually turned MacCoffee into a well-known brand in Russia.”</p>

<p>For his 21-year-old daughter Anastasia, he has this advice: Do what you love. “I always tell her, whatever you choose to become – a painter, entrepreneur or lawyer – pursue it with all you have.”</p>

<p>“Only with determination and passion can you create an impact in people’s lives.”</p>

<p><strong>Food Empire Holdings Ltd</strong></p>

<p>Mainboard-listed Food Empire is a global branding and manufacturing company in the food and beverage sector. Its products are exported to over 50 countries, such as Russia, Ukraine, Kazakhstan, Central Asia, China, Indochina, the Middle East, Mongolia and the US. The Group has 24 offices (representative and liaison) worldwide, and operates seven facilities in Malaysia, India, Vietnam, Russia and Ukraine. Products include regular and flavoured coffee mixes and cappuccinos, chocolate drinks and flavoured fruit teas. It also markets instant breakfast cereal, potato crisps and assorted frozen convenience foods. Food Empire’s strength lies in its proprietary brands that include Petrovskaya Sloboda, Klassno, Hyson, OrienBites and Kracks. MacCoffee – the Group’s flagship label – has been consistently ranked as the leading 3-in-1 instant coffee brand in its core markets of Russia, Ukraine and Kazakhstan.</p>

<p>The company website is: <a href="http://www.foodempire.com"><strong>www.foodempire.com</strong></a>.<br><br>
Click <a href="https://www2.sgx.com/securities/equities/F03"><strong>here</strong></a> for the company's StockFacts page.<br><br>
For the three months and full year ended 31 December 2019 financial results, click <a href="https://links.sgx.com/FileOpen/FY2019%20Press%20Release.ashx?App=Announcement&amp;FileID=597521"><strong>here</strong></a>.</p>
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    Food Empire CEO


Food Empire CEO Sudeep Nair’s fortuitous, and somewhat unexpected, career journey – one that spanned three decades – first began with a switch from coding to computers, then to coffee.

A software programmer by training, Nair realised early on that this role wasn’t his cup of tea, and turned to computer equipment sales. It was during one of his buying trips to Bangkok in 1992 that he crossed paths with Food Empire Chairman Tan Wang Cheow, who then was running a consumer electronics dealership. The pair hit it off, and the following year, Nair decided to throw in his lot with Tan.

“Our business focused on exporting electronics goods like disk drives, printers and PCs to Eastern Europe. As it was a pure trading model, operating conditions could be brutal,” Nair recalled.

“It happened that some our distributor contacts were interested in sampling new beverage products, so we brought over some sachets of 3-in-1 coffee mix. After that, trial orders for the coffee mix took off.”

The pair knew the writing was on the wall for consumer electronics distribution, a business plagued by stiff competition and razor-thin margins. “We didn’t want to handle someone else’s brands – we wanted to create something of our own. So after our first test product – a 3-in-1 instant coffee mix – was well-accepted by the market, we knew we had struck gold.”

In 1995, with 40 employees in a small office in Moscow, the MacCoffee brand – which opened up a new world of aromatic flavours for Russian consumers – was born.

For Nair, it was more of a hardship posting. “I was hesitant to move to Moscow,” he admitted.

After the Berlin Wall collapsed in 1989 and the Soviet Union dissolved in 1991, Russia and Eastern Europe was in disarray. “Other colleagues who came over stayed up to a month before quitting, and there was no one else left to do the job.”

Another hurdle was educating the local, predominantly tea-drinking market. “At that time, no one knew much about instant coffee. Thankfully, the locals were game to try new products.”

As Eastern Europe began its transition to a market economy, foreign investments were warmly welcomed. In particular, instant food and beverage products were seen as a novelty.

A Bumpy Road

By 1997, Nair, as Food Empire’s Country Head, had succeeded in laying the foundation for a multi-million-dollar MacCoffee brand, one that took Moscow by storm. “That was our first high,” he added.

However, the low wasn’t far behind. In the summer of the following year, the Russian Financial Crisis struck – oil prices plummeted, bringing the economy down in one fell swoop. The government subsequently devalued the currency and defaulted on its debts.

“That was my first experience managing a crisis. It was a very bad time for everyone – the currency went from 6 roubles to 24 roubles to the dollar, and chaos reigned.”

Fortunately, Russia bounced back in the next two years, thanks to international financial aid and a sharp rebound in oil prices. “Food Empire returned to its growth path from 2000, and that year, we successfully listed on SGX,” recalled Nair, who was appointed Executive Director that same year.

Between 2000 and 2005, the Group expanded rapidly, spreading its wings to the Commonwealth of Independent States (CIS), Ukraine and Kazakhstan.

The next trough, however, was just around the corner. This time, it was the 2009 Global Financial Crisis. By then, the realisation that Food Empire was too dependent on a single geographical market had hit home.

“Our operations were too concentrated in Russia and the CIS, and we saw the urgency of diversifying our revenues out of this region,” he said.

“While it’s easy to talk about diversification, it’s tough to execute. We experimented with various business models, but there were many challenges, and we didn’t make much headway.”

In 2012, Nair was promoted to Chief Executive Officer. Renewing his focus on developing Food Empire’s diversification strategy, he decided to adopt a multi-pronged approach in ASEAN. Myanmar, Vietnam and the Philippines were identified as target markets.

“The ASEAN region has a population of more than 600 million, and is stable politically as well as economically. We had tried to penetrate these three markets through an export and trading model, but failed, because there were too many local players and competition was intense.”

Growing Asia Presence

Instead, Food Empire began investing in people and resources to build its proprietary brands in each geography. Next, it began vertically integrating operations by setting up manufacturing plants in markets like India and Malaysia for key ingredients, such as instant coffee, non-dairy creamer, and later, potato crisps.

“Of the three markets we selected, we achieved clear success in one – Vietnam. We bled for three years and was on the verge of shutting down, but finally, we turned it around,” Nair said.

Over the last five years, Food Empire has grown its Vietnam sales to S$50 million from S$2 million, and secured more than 10% share of the domestic market for instant coffee. “No Singapore company has done that so far in the branded instant coffee industry,” he added.

The Group continues to tweak its blueprint for the Philippines. “Our entry strategy wasn’t quite right, and we’re trying again with a new team and a new direction.”

Myanmar, however, was a failure. “We pulled out of that market last year, largely because of its unstable currency, which has been on the decline. None of the F&amp;B brands in Myanmar have been able to raise prices, and as a result, everyone is grappling with huge margin compression.”

At the same time, Nair kept his pulse on merger and acquisition opportunities. “It took us 15 years to hit revenues of US$200 million through organic growth. We can expedite our next growth phase through M&amp;As.”

But due to stringent criteria, Food Empire has yet to conclude a deal. “We’re seeking a partner or target with a successful business model, preferably in Asia or Western Europe, as we want to diversify out of the Eastern European region. But we haven’t found a candidate who is a good fit.”

One new and immediate challenge is the coronavirus pandemic. “We’ve not seen a direct hit to our supply chain from COVID-19, but consumer demand has been affected as most major economies have slowed down.”

Nonetheless, the Group’s strong balance sheet should provide a buffer, he added. For the year ended 31 December 2019, revenue rose 1.5% year-on-year to US$288.6 million, while net attributable profit jumped 44.9% to US$17.7 million. Cash and cash equivalents rose 29.6% to US$54.7 million as at end-2019.

Today, Food Empire Holdings Ltd produces a wide variety of instant beverages such as regular and flavoured coffee mixes and cappuccinos, chocolate drinks and flavoured fruit teas. It also markets instant breakfast cereal, assorted frozen foods and snack items. Raw ingredients, like instant coffee and non-dairy creamer, are sold to other food manufacturers under its B2B arm.

Proprietary brands include Petrovskaya Sloboda – a domestic coffee brand acquired in 2007, Café PHO, Klassno, CafeRite, NutriRite, Hillway, Hyson, OrienBites and Kracks. Its flagship MacCoffee brand has consistently been ranked as the leading 3-in-1 instant coffee brand in the Group’s core markets of Russia, Ukraine and Kazakhstan.

Coming Into Its Own

The medium-term outlook, meanwhile, remains bright. “We’ve changed Food Empire’s operating model by diversifying our revenue base into Asia, so we’ll have more than one region driving growth,” Nair said.

In 2011, the Group derived only US$25 million in revenue from markets outside Ukraine and the CIS, including Russia. By 2019, this figure had surged to US$108 million, thanks to its expanding Asian operations.

“We’ve built a more solid business by reducing our geographical concentration on Eastern Europe to 63% from 80% previously,” he added.

The Group’s vertically integrated operations – ranging from manufacturing to sales and distribution – also provides added stability.

After nearly 30 years, Food Empire has finally come into its own, Nair noted. “We’re a mid-sized company, not a billion-dollar MNC – it’s been tough to build strong, proprietary brands in each market given our limited resources. But we’ve succeeded, despite the many bumps along the way.”

Looking back on the Group’s milestones, Nair feels a deep satisfaction. “When I was in my mid-20s, financial success was the main goal. Now, in the last 10 years, seeing how Food Empire has evolved – from 40 staff when I joined to more than 3,000 now – it’s about enriching people’s lives, from employees to shareholders and consumers, through the brands and communities we build.”

The 50-year-old, who drinks at least three to four cups of coffee a day, prefers Colombian, Guatemalan and Kenyan beans. His source of inspiration is rooted in a version of the David and Goliath story, where small and medium enterprises are able to hold their own against multinational corporations in the same industry segment.

“I tell my staff – don’t look at the large MNCs out there, focus instead on the small, local businesses which have made their mark.”

His biggest muse, however, is his wife Irina, whom he met in 1995 after moving to Moscow. “At that time, she was in charge of administration and marketing in the office. She was a good source of insight into local consumer trends, and played an integral part in formulating the advertising strategy that eventually turned MacCoffee into a well-known brand in Russia.”

For his 21-year-old daughter Anastasia, he has this advice: Do what you love. “I always tell her, whatever you choose to become – a painter, entrepreneur or lawyer – pursue it with all you have.”

“Only with determination and passion can you create an impact in people’s lives.”

Food Empire Holdings Ltd

Mainboard-listed Food Empire is a global branding and manufacturing company in the food and beverage sector. Its products are exported to over 50 countries, such as Russia, Ukraine, Kazakhstan, Central Asia, China, Indochina, the Middle East, Mongolia and the US. The Group has 24 offices (representative and liaison) worldwide, and operates seven facilities in Malaysia, India, Vietnam, Russia and Ukraine. Products include regular and flavoured coffee mixes and cappuccinos, chocolate drinks and flavoured fruit teas. It also markets instant breakfast cereal, potato crisps and assorted frozen convenience foods. Food Empire’s strength lies in its proprietary brands that include Petrovskaya Sloboda, Klassno, Hyson, OrienBites and Kracks. MacCoffee – the Group’s flagship label – has been consistently ranked as the leading 3-in-1 instant coffee brand in its core markets of Russia, Ukraine and Kazakhstan.

The company website is: www.foodempire.com.  
Click here for the company's StockFacts page.  
For the three months and full year ended 31 December 2019 financial results, click here.



Food Empire Crafts A Superior, Balanced Brew

<p><i><b>These equity research reports are not written by the SGX.</b> SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</i></p><p>SMALL/MID CAP HIGHLIGHTS</p>
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<h2>Food Empire Holdings (FEH SP)</h2>
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<p><strong>2019: Record-high Earnings; 194% Higher Dividend Signals Strong Confidence</strong></p>
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<p><strong>Food Empire’s core earnings of US$25.5m was in line with our expectations. Earnings growth was boosted by higher core net profit margin expansion of 1.2ppt in 2019 and stable revenue growth. Further, the group has proposed total dividend of 2.0 S cents per share, higher compared with 0.68 S cents per share in 2018, reflecting stronger confidence in 2020 outlook. Maintain BUY with a higher PE-based target price of S$0.92. At current prices, the stock trades at an attractive valuation of 10x 2020F PE.</strong></p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/133/363/original/image_64327235841589391325135.png?1589391327" class="editor-image img-responsive" data-smartkarma-image-id="133363"></figure>
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<li><strong>Results in line with expectations</strong>. Food Empire Holdings’ (FEH) record level core net profit in 2019 (ex forex) of US$25.5m (+17.9% yoy) came in within expectations. Full-year revenue grew 1.5% yoy due to stronger revenue from Ukraine, Kazakhstan and CIS markets (+10.5% yoy) on the back of higher sales volume and appreciation of the Hryvnia against the US dollar. The strong growth in these markets managed to offset the softer revenue from Russia (-0.6% yoy) primarily due to the depreciation of the Russian ruble and lower revenue from Southeast Asia (-1.8% yoy) and other markets (-3.5% yoy) from rationalisation of underperforming markets.</li>
<li><strong>Margins on the rise.</strong> Earnings growth in 2019 was mainly driven by core net profit margin expansion of 1.2pt, led by lower selling and distribution expense (-13.3% yoy) and general and admin cost (-6.5% yoy). This is largely attributed to the group’s successful efforts in rationalisating underperforming markets which has helped improved earnings quality and lifted margins. Although revenue from its Southeast Asia business slipped, we understand its Vietnam business continues to grow strongly, registering double-digit revenue growth.</li>
<li><strong>Higher dividend shows FEH’s confidence</strong>. FEH has proposed a final and special dividend of 1.0 S cents/share each, translating to a payout ratio of approximately 30%, This is a significant bump up from 0.68 S cents/share in 2018 and is the historical highest level. We think this signals management’s optimism on the outlook for the group and should be sustainable given its strong operating cash flow.</li>
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These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.SMALL/MID CAP HIGHLIGHTS


Food Empire Holdings (FEH SP)

2019: Record-high Earnings; 194% Higher Dividend Signals Strong Confidence




Food Empire’s core earnings of US$25.5m was in line with our expectations. Earnings growth was boosted by higher core net profit margin expansion of 1.2ppt in 2019 and stable revenue growth. Further, the group has proposed total dividend of 2.0 S cents per share, higher compared with 0.68 S cents per share in 2018, reflecting stronger confidence in 2020 outlook. Maintain BUY with a higher PE-based target price of S$0.92. At current prices, the stock trades at an attractive valuation of 10x 2020F PE.






Results in line with expectations. Food Empire Holdings’ (FEH) record level core net profit in 2019 (ex forex) of US$25.5m (+17.9% yoy) came in within expectations. Full-year revenue grew 1.5% yoy due to stronger revenue from Ukraine, Kazakhstan and CIS markets (+10.5% yoy) on the back of higher sales volume and appreciation of the Hryvnia against the US dollar. The strong growth in these markets managed to offset the softer revenue from Russia (-0.6% yoy) primarily due to the depreciation of the Russian ruble and lower revenue from Southeast Asia (-1.8% yoy) and other markets (-3.5% yoy) from rationalisation of underperforming markets.
Margins on the rise. Earnings growth in 2019 was mainly driven by core net profit margin expansion of 1.2pt, led by lower selling and distribution expense (-13.3% yoy) and general and admin cost (-6.5% yoy). This is largely attributed to the group’s successful efforts in rationalisating underperforming markets which has helped improved earnings quality and lifted margins. Although revenue from its Southeast Asia business slipped, we understand its Vietnam business continues to grow strongly, registering double-digit revenue growth.
Higher dividend shows FEH’s confidence. FEH has proposed a final and special dividend of 1.0 S cents/share each, translating to a payout ratio of approximately 30%, This is a significant bump up from 0.68 S cents/share in 2018 and is the historical highest level. We think this signals management’s optimism on the outlook for the group and should be sustainable given its strong operating cash flow.











Non-SGX Report: Food Empire Holdings (FEH SP): 2019: Record-High Earnings; 194% Higher Dividend Signals Strong Confidence

<p><i><b>These equity research reports are not written by the SGX.</b> SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.</i></p><div>
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<h2>FOOD EMPIRE HOLDINGS</h2>
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<p>Phố -bulous ice coffee in Vietnam</p>
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<p>SINGAPORE | CONSUMER | SITE VISIT NOTE</p>
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<p>On 13 January 2020, we visited Vietnam (Ho Chi Minh City), which is Food Empire’s second largest market. Food Empire’s sales in Vietnam is mainly anchored by its star product, Café Pho and their variants. Currently top 3 in terms of value in the 3-in-1 coffee mix subsegment, Food Empire captures c.80% of their sales through General Trade.</p>
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<p><strong>KEY HIGHLIGHTS</strong></p>
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<p><strong>Company Background<br></strong>Food Empire Holdings (Food Empire) is a food and beverage (F&amp;B) company that manufactures and markets instant beverage products, frozen convenience food, confectionery and snack food. In FY18, beverages constitute 86.8% of their topline.</p>
<p>Food Empire's products are sold to over 50 countries. Its key market, Russia accounts for 40% of its revenue FY18, followed by Indochina (18%), Kazakhstan (13%) and Ukraine (9%). Food Empire was listed on 25 April 2000 on the main board of SGX at $0.13. The Group operates 8 manufacturing facilities in India, Malaysia, Myanmar, Russia, Ukraine and Vietnam.</p>
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<p><strong>Site Visit Highlights</strong></p>
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<li>
<p><strong>Strength in General Trade underpinned by dedicated sales and marketing team</strong>. Food Empire’s sales representatives are incentivised to reach out to the local retailers for better product visibility within the stores compared to their competitors. Weekly, the team would visit the retailers to ensure that the stores are well-stocked. Given that the product is priced at a premium, Food Empire also differentiates themselves by providing the option for consumers to purchase their products in sachets, which is more accommodating for those with lower expenditure capacity.</p>
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<p><strong>Capitalises on festivities to create brand awareness</strong>. Food Empire refreshes the packaging of their products regularly to celebrate festive seasons with the locals. To engage the growing group of savvy millennials, Food Empire also produces commercials that reinforce their fun and refreshing brand image. Most recently, Food Empire collaborated with Tóc Tiên, a local pop celebrity, to celebrate the Vietnamese New Year, through a Youtube music video which garnered 50mn views in 2 weeks.</p>
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<p><strong>Automation eased packing bottleneck.</strong> During our visit, the factory in Vietnam was operating 24 hours 6 days work week. It upgraded its packing operations to be able to produce 4.6x more cartons in a month. Given that the factory is equipped to operate 24/7 and that they are able to meet any surge in demand by tapping on their neighbouring factory in Malaysia, Food Empire should be able to take on more capacity when required.</p>
</li>
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<p><strong>Launched new products to compete and more in the pipeline.</strong> Food Empire ventured into variations of Café Phố to increase sales and compete with its competitors for market share in different submarkets. Post Café Phố, Food Empire rolled out Café Mê and Café Kết (hot coffee, 3 in 1), Café Phố Đen Đá (ice coffee, 2 in 1), Café Phố Nhà Làm (ice coffee, 3 in 1, more premium than Café Phố). To cater to a growing group of millennials, Food Empire is currently experimenting on creating uniquely flavoured energy drinks targeted to refresh and ‘buff’ young gamers in Vietnam.</p>
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These equity research reports are not written by the SGX. SGX supports the distribution of the research reports by external contributors. Please refer to the Disclaimer in the attached report.



FOOD EMPIRE HOLDINGS




Phố -bulous ice coffee in Vietnam




SINGAPORE | CONSUMER | SITE VISIT NOTE




On 13 January 2020, we visited Vietnam (Ho Chi Minh City), which is Food Empire’s second largest market. Food Empire’s sales in Vietnam is mainly anchored by its star product, Café Pho and their variants. Currently top 3 in terms of value in the 3-in-1 coffee mix subsegment, Food Empire captures c.80% of their sales through General Trade.




KEY HIGHLIGHTS




Company Background Food Empire Holdings (Food Empire) is a food and beverage (F&amp;B) company that manufactures and markets instant beverage products, frozen convenience food, confectionery and snack food. In FY18, beverages constitute 86.8% of their topline.
Food Empire's products are sold to over 50 countries. Its key market, Russia accounts for 40% of its revenue FY18, followed by Indochina (18%), Kazakhstan (13%) and Ukraine (9%). Food Empire was listed on 25 April 2000 on the main board of SGX at $0.13. The Group operates 8 manufacturing facilities in India, Malaysia, Myanmar, Russia, Ukraine and Vietnam.




Site Visit Highlights


Strength in General Trade underpinned by dedicated sales and marketing team. Food Empire’s sales representatives are incentivised to reach out to the local retailers for better product visibility within the stores compared to their competitors. Weekly, the team would visit the retailers to ensure that the stores are well-stocked. Given that the product is priced at a premium, Food Empire also differentiates themselves by providing the option for consumers to purchase their products in sachets, which is more accommodating for those with lower expenditure capacity.


Capitalises on festivities to create brand awareness. Food Empire refreshes the packaging of their products regularly to celebrate festive seasons with the locals. To engage the growing group of savvy millennials, Food Empire also produces commercials that reinforce their fun and refreshing brand image. Most recently, Food Empire collaborated with Tóc Tiên, a local pop celebrity, to celebrate the Vietnamese New Year, through a Youtube music video which garnered 50mn views in 2 weeks.


Automation eased packing bottleneck. During our visit, the factory in Vietnam was operating 24 hours 6 days work week. It upgraded its packing operations to be able to produce 4.6x more cartons in a month. Given that the factory is equipped to operate 24/7 and that they are able to meet any surge in demand by tapping on their neighbouring factory in Malaysia, Food Empire should be able to take on more capacity when required.


Launched new products to compete and more in the pipeline. Food Empire ventured into variations of Café Phố to increase sales and compete with its competitors for market share in different submarkets. Post Café Phố, Food Empire rolled out Café Mê and Café Kết (hot coffee, 3 in 1), Café Phố Đen Đá (ice coffee, 2 in 1), Café Phố Nhà Làm (ice coffee, 3 in 1, more premium than Café Phố). To cater to a growing group of millennials, Food Empire is currently experimenting on creating uniquely flavoured energy drinks targeted to refresh and ‘buff’ young gamers in Vietnam.































Singapore

Food Empire Holdings Limited manufactures and markets instant beverage products, frozen convenience food, confectionery and snack food. The Company exports its products to markets such as Russia, Eastern Europe, Central Asia, the Middle East and Indochina.

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