My love for coffee spurred my interest in coffee counters. Hence I decided to compare and contrast the three listed in SGX. Though I buy into companies on individual merit, regardless of sectors they operate in, my portfolio coincidentally hold 2 out of the 3 counters.
Overview1)
Food Empire operates primarily in Russia, Ukraine, Central Asia and Eastern Europe. Its main brands are
Business comparison
Figure 1 - Revenue from 2003 to 2006
It is clear from 2003 that Tsit Wing was running far behind Super Coffeemix and Food Empire in terms of sale. Tsit Wing had closed to 80% of market share in Hong Kong and due to limited expansion success overseas (esp. China), their sale basically stagnated across the years. Super Coffeemix expanded well in Southeast Asia and to a limited extent, China. The growth in Southeast Asia (incl. Singapore) already improved sales by a large margin. Food Empire seemed to have even a better success in Russia, Ukraine, Central Asia and parts of Eastern Europe. It's sale was a little behind Super Coffeemix in 2003 but caught up quite significantly by 2006.
Profitability
Figure 2- Profit Margin from 2003 to 2006
Coffee distribution business is a very competitive business. Competitive business environment without perceivable barriers to entry will ultimately drive down profits to zero for all players. As can be seen from the chart above, Tsit Wing was enjoying high profit margin but competition erodes the margin significantly. Super Coffeemix, profit margin after is no better off after 2005. In stark contrast, Food Empire's profit margin, though showing signs of erosion, kept above 10%.
Figure 3- Earnings per share from 2003 to 2006
Comparing earnings per share, it is clear Food Empire is a runaway success.
Figure 4- Return on equity from 2004 to 2006
Comparing return on equity, unsurprisingly, Food Empire lead the pack. However, Tsit Wing earned better returns on equity than Super Coffeemix.
Comparing the numbers |
| Food Empire | Super Coffeemix | Tsit Wing |
| Revenue (Sale) | 234,124 | 210,690 | 64,341 |
| Cost of goods sold | 117,509 | 135,161 | 36,827 |
| Selling & distribution expense | 56,746 | 27,211 | 10,886 |
| General & administrative expense | 23,904 | 24,440 | 8,520 |
| Other expense | 5,041 | 898 | 205 |
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| Efficiency |
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| Cost of goods sold to sales | 50.19% | 64.15% | 57.24% |
| Selling & distribution expense to sales | 24.24% | 12.92% | 16.92% |
| General & administrative expense to sales | 20.34% | 18.08% | 23.14% |
| Other expense to sales | 2.15% | 0.43% | 0.32% |
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| Profitability |
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| Net income (excl. non-operating income) | 26,319 | 17,159 | 6,874 |
| Profit Margin (after tax) | 11.24% | 8.14% | 10.68% |
| Return on Assets, ROA | 17.08% | 6.34% | 13.02% |
| Return on Equity, ROE (incl. minority interest) | 21.70% | 9.17% | 15.25% |
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| Earnings per share, EPS |
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| Earnings per share (Cents) | 6.42 | 3.48 | 3.56 |
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| Valuation (As at 26 June 2007) |
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| Historical P/E | 20.47 | 22.43 | 7.31 |
| Intrinsic Value (SGD) | 1.04 | 0.72 | 0.30 |
Table 1 - Business performance across the 3 companies
Comparing their priceFrom the above figures, it is without doubt that the better performer is Food Empire. The only company amongst the 3 that can maintain a high, double digit ROE, a relatively high, double digit profit margin and yet speculator sales growth is Food Empire. Hence it is not surprising to note that's share price is traded at $1.05, above $0.97 and $0.28 for Super Coffeemix and Tsit Wing respectively.
One interesting fact to note is that the market valued Food Empire and Super Coffeemix relatively the same (97 cents is not that far off $1.05). However, Tsit Wing's ROE, ROA, profit margin and EPS was so much better than Super Coffeemix, yet Tsit Wing traded at only less than 30% of Super Coffeemix's share price.
One possibility was that the market might have anticipated a speculator growth in profitability of Super Coffeemix to justify current price valution. Hence, assume that Super Coffeemix is fairly valued, is there a possibility that Tsit Wing is actually unvalued, given its strong performance indicator? That its trading at such price because it is largely ignored, under researched, compared to Super Coffeemix?
ValuationI decided to investigate for myself. Taking into consideration their current business prospects and factoring anticipated future earnings, I estimated their intrinsic value using the Residual Income Model. Using a Expected Rate of Return of 10%, I found that Food Empire and Tsit Wing was actually trading at fair value while Super Coffeemix was trading above its intrinsic value. Maybe I underestimated the potential earnings growth of Super Coffeemix.
Labels: Coffee, Comparison, Food Empire, Super Coffeemix, supercoffeemix, Tsit Wing
A few things to note:
