4QFY12 exceeded; bumped up by higher GP margins. 4QFY12 net profit of USD3.6m (-3% y-o-y) boosted FY12 net profit to USD21m (+37% y-o-y), exceeding our estimates. Russia surprised as sales growth jumped up by +18% y-o-y vs a tepid +3% y-o-y for the past three consecutive quarters. The stronger growth in Russia was offset by lower than expected growth in Eastern Europe and its other markets.

Two new plants in Malaysia set to commence production in 3QFY13. Food Empire currently has two manufacturing facilities located in Russia and Ukraine. In line with its intention to further penetrate the Asian market, it is in the process of building two new plants located in Iskandar region in Johor, Malaysia. These consist of a non-dairy creamer plant and a snacks plant which is targeted to commence production in 3QFY13. The nondairy creamer plant would have a production capacity that supersedes internal needs with 70% of capacity for external sale. Meanwhile, the snacks plant will produce the Group's "Kracks" branded potato chips (akin to Pringles) to be sold in Europe.

Raising 2013-2014 earnings by 18%. We have raised our 2013 and 2014 net profit estimates by 18%. This is in light of higher sales growth momentum in Russia (previously estimated 3%, now 10%). We also raise our gross profit margin assumptions to 46.7% in 2013 and 47.0% in 2014.

Valuation: Maintain Buy with a higher TP of SGD0.84. Since our initiation in Dec 2012, stock price has risen by 19% to reach our fair valuation. However, we believe the stock still has legs to run given a stronger sales growth momentum in Russia as well as margin expansion from the commencement of its two new plants.

Source: OSK