- Growth in Southeast Asia: Food Empire is pivoting its business to Southeast Asia, with Vietnam identified as a key market after showing the highest growth in 9M2024.
- Strategic Investment: Food Empire is investing US$80 million in a new facility in Vietnam and US$30 million in a new facility in Kazakhstan.
- Financial Forecast: Food Empire may see improved revenue in FY2024, but lower net profit due to foreign exchange impacts and higher coffee prices.
Food Empire Holdings Ltd (FEH) (SGX:F03) (FEMP.SI), which currently has its largest market in Russia, is expanding its business in Southeast Asia, especially Vietnam. In the first nine months of 2024 (9M2024), Southeast Asia and South Asia were the company’s fastest-growing segments. To support its growth, FEH has established strategic partnerships and committed investments to develop new facilities.
Operating in the food and beverages industry, FEH offers instant beverages and snack foods, including coffee mixes, fruit-flavored tea, instant cereal blends, and crispy potato snacks. Their key brands include MacCoffee, Café PHO, Petrovskaya Sloboda, Klassno, Hillway, and Kracks.
Investments in Capacity Expansion
FEH has approximately eight manufacturing facilities in five countries and 23 offices worldwide. Recently, it officially opened its new office at Asia Green in Singapore, consolidating all its office functions on a single floor.
- Investment in Vietnam: FEH is investing US$80 million in Binh Dinh province, Central Vietnam, for the construction of its second freeze-dried soluble coffee manufacturing facility. Construction will begin in the first quarter of 2025, with the facility expected to be ready by early FY2028. Additionally, FES (Vietnam), FEH’s wholly owned subsidiary, is prioritizing the development of a widespread distribution system and researching new products besides coffee to expand its customer base.
- Investment in Kazakhstan: FEH is investing US$30 million in a new coffee-mix production facility in Kazakhstan. This facility will occupy half of a 10-hectare plot, leaving room for future expansion. The plant is expected to be ready by the end of FY2025.
Company Growth Strategies
To support its ambitious growth plans, FEH has implemented several strategic initiatives:
- Strategic Partnership: In November 2024, Food Empire completed a strategic partnership with Ikhlas Capital, an ASEAN private equity fund, to expand its business in Southeast Asia and South Asia. The company is leveraging Ikhlas Capital’s network to open doors for partnerships and business opportunities in the region.
- Capital Injection: FEH has issued US$40 million in 5-year redeemable exchangeable notes with a 5.5% annual interest rate. These notes can be converted into FEH shares at S$1.09 apiece after November 1, 2026. This helps the company raise capital while providing flexibility for future equity conversion.
Financial Insights and Outlook
FEH is expected to release its FY2024 results on February 26, 2025. What can investors anticipate?
- Growing Markets: For 9M2024, Southeast Asia and South Asia saw revenue growth of 30.6% and 28.3% year-on-year, respectively. The strong growth in Southeast Asia was driven by Vietnam. In South Asia, higher sales volumes of snacks and non-dairy creamer contributed to the growth. Southeast Asia’s revenue may surpass Russia’s revenue over FY2025 to FY2026.
- Impact on Net Profit: FEH’s net profit may dip in FY2024 due to foreign exchange impacts, higher coffee prices, increased marketing spend in Vietnam, and additional interest expenses from the redeemable exchangeable notes.
Risks to Watch
Over FY2019 to FY2023, FEH’s revenue growth was affected by the depreciation of the Russian ruble against the US dollar, disruptions from the Covid-19 pandemic, and the Ukraine-Russia military conflict.
- Russia-Ukraine Conflict: Russia is FEH’s largest market, accounting for 33.7% of FY2023 revenue. Further escalation of the conflict could damage FEH’s Russian and Ukrainian factories, affecting production capabilities.
- Foreign Exchange Risks: FEH operates in many countries and sells its products in local currencies, while raw materials are purchased in US dollars. Depreciation of the Russian ruble against the US dollar will lead to lower revenue and net profit.
- Cost Increases: FEH is exposed to fluctuations in raw material prices, especially coffee. Global coffee prices spiked in 2024 due to poor weather, which could lower FEH’s net profit. Generally, FEH has managed these cost increases by raising product prices.
Investors interested in FEH should monitor the company’s operating margins for signs of improvement amid stabilizing market demand, assess the sustainability of its market share in Russia, and stay informed about any developments in the Russia-Ukraine conflict.
References
CGSI | Food Empire | Jan 6, 2025
CGSI | Food Empire | Jan 16, 2025
Disclaimer: ProsperUs Manager of Content, Hailey Chung, does not own shares of the company.
