FOOD EMPIRE: Which kopi seller is cheaper & better? The market leader in Malaysia or Singapore?

Thriving across the Causeway is Power Root, a Bursa Malaysia listco that shares a number of business similiarities with Food Empire Holdings listed on the Singapore Exchange.

Power FE8.24 Power Root's key markets are Malaysia and Middle East, while Food Empire's are Vietnam, Russia, Ukraine and Kazaksthan and the CIS countries.Both are brand owners and manufacturers of beverages mainly.

Power Root's key brands -- such as Ah Huat and Alicafe -- are recognisable as they can be found on the shelves of supermarts in Singapore.

That's not the case for Food Empire's key brands Cafe PHO (popular in Vietnam) and MacCoffee (popular in Russia).

There's another aspect where the 2 differ: market valuation.

On several metrics, Food Empire trades at lower valuation, potentially offering investors more value.

Start with one metric: P/E ratio.

Power Root currently trades at 16.8X its trailing 12-month earnings while Food Empire, 7.3X.

By trading at a higher P/E ratio, Power Root is more expensive relative to its earnings compared to Food Empire.

So the latter is under-appreciated and undervalued -- but things might just improve if a strategic partner enters the picture soon (more on this later).

Aspect	Power Root Berhad	Food Empire Holdings
HQ	Malaysia	Singapore
Core Products	Beverages including instant coffee, tea, and energy drinks	Instant beverages, snack foods, and food ingredients such as non-diary creamer
Key Brands	Alicafé, Per’l Café, Ah Huat White Coffee, Extra Power Root	MacCoffee, Cafe PHO, Petrovskaya Sloboda, Klassno, Kracks
Market Presence	Primarily in Malaysia and the Middle East	Over 60 countries, including Central Asia, Eastern Europe, and the Middle East
Production	4 plants in Johor. Focus on beverage production.	8 manufacturing facilities in five countries. Wide product range (see above).

Aside from the P/E metric mentioned above, below is a table of more metrics of the two companies for comparison.

Bottomline: Food Empire outperforms Power Root on measures such as operating margin while being cheaper on measures such as price/sales and EV/EBITDA.

	Food Empire (stock: 97.5 c)	Power Root (stock: RM1.51)
Market cap	S$512.9M	RM686.9M
Enterprise value	S$468.8M	RM632.6M
Trailing P/E	7.31	16.8
Dividend yield*	5.08%	5.3%
Price/sales	0.86	1.66
Price/book	1.40	1.99
Enterprise value/ EBITDA	4.32	10.61
Operating margin (ttm)	15.99%	10.21%
Return on equity (ttm)	19.81%	13.26%
Cash on balance sheet	S$99.9M	RM113.8M
Debt	S$50.7 M	RM60.3 M
* excludes special dividends Source: Yahoo! and company announcements

While Food Empire continues its successful diversification strategy that has generated US$100 million annual revenue each in 2 additional markets -- Southeast Asia and India -- apart from Russia, there's a potential upcoming catalyst for re-rating Food Empire.

Go back to 24 June 2024 when Food Empire announced its entry into a non-binding term sheet with Ikhlas Capital.

IkhlasCapital8.24

• It's an Asean-focused private equity fund manager headquartered in Singapore.

•Investors of Ikhlas include over 50 ASEAN institutions and family offices.

• The founding partners of Ikhlas are professionals with over a century of combined experience in banking and business.

Food Empire sees a partnership with Ikhlas as a strategic move and that Ikhlas could bring significant value to the table, including US$40 million of capital injection as spelt out in the term sheet.

The focus is on leveraging Ikhlas's capabilities to enhance the company's operations and market presence, potentially aiding in areas such as expansion and strategic growth.

Ikhlas’s specific roles or responsibilities have not been outlined.

Still, all of that strongly points to a potential re-rating of the stock in addition to further enhancement of the business fundamentals of Food Empire.

The two parties intend to execute a definitive agreement within 60 days from the date of signing of the term sheet -- ie in a fortnight or so.

If that materialises, investors will get greater clarity as to how Ikhlas may make an impact as well as how the fund itself will benefit from Food Empire's stock being cheaper and better relative to its Malaysian peer.

See also Food Empire's 1H2024 PowerPoint deck here.

FOOD EMPIRE: Which kopi seller is cheaper & better? The market leader in Malaysia or Singapore?

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