The Battle to Be the Better Instant “Kopi” Stock

I can’t say this for others, but when I shopped for instant coffee in the past in super markets, I only had to make the choice between a “3-in-1” or “2-in-1” pack. Now, there are choices aplenty, with varieties such as “5-in-1”, “6-in-1”, microbrew, white coffee, charcoal roasted, and the list goes on…

In the battle for consumers’ dollars in the global instant coffee space, there are a fair number of listed companies in the field. Let’s compare four such firms – two from Singapore’s stock market and two from Malaysia’s – to see which has the stronger business.

The four companies are:

Team Singapore (Kopi-C Siu Dai)

  1. Super Group Ltd (SGX: S10): A Singapore-based coffee manufacturer which has a presence in most Southeast Asian countries, including Myanmar, Singapore, and Malaysia.
  2. Food Empire Holdings Limited  (SGX: F03): The largest instant coffee player in Russia. Food Empire Holdings’s business is currently centered on the Russian, Eastern European, and Central Asian markets.

Team Malayisa (Kopi-C Kurang Manis)

  1. Old Town Bhd (KLSE:5201.KL): One of the key competitors of Super Group, Old Town is based in Malaysia and also operates café outlets beyond the manufacture of instant coffee and tea mixes. The company counts Malaysia as its largest geographical market.
  2. Nestlé (Malaysia) Berhad (KLSE:4707.KL): The listed subsidiary of the global consumer food products giant Nestlé, Nestlé (Malaysia) is focused on distributing food and beverage products, including Nestlé-branded instant coffee, throughout Malaysia.

We’d be stacking the four firms against each other in terms of their revenue and profit growth, returns on equity, and dividend yields.

Revenue and Profit Growth

Source: S&P Capital IQ

The chart above plots the growth of revenue and earnings per share (EPS) for each company over the five year period from 2010 to 2014. As each company reports its results in a different currency, the comparison has been adjusted by basing the changes in US dollar terms.

We can see that the quartet, except for Nestlé (Malaysia), had grown their revenues in the region of 40% to 50% in total during the past five years.

But interestingly, only Old Town and Nestlé (Malaysia) had been able to grow their EPS by double-digits (the numbers are 15% and 18%, respectively). In fact, Nestlé (Malaysia) actually grew its earnings without any significant increase in revenue – this might indicate that the company has higher pricing power for its products.

So, Team Malaysia has scored one point here.

Return on Equity

Source: S&P Capital IQ (ttm = trailing 12 months)

The return on equity measures a company’s ability to generate a profit based on shareholders’ invested capital. Looking at the chart above, we can clearly see that Nestlé (Malaysia) dominates this contest with a return on equity of 77% over the past 12 months.

It should be noted that Nestlé (Malaysia) has an advantage over its competitors in terms of asset utilization as the company is likely supported by its parent Nestlé in many areas such as research and development and perhaps even manufacturing.

With that said, the score is now 2-0 to Team Malaysia.

Dividend Yields

Source: S&P Capital IQ

In terms of dividend yields, both Super Group and Old Town are similar though the latter edges ahead with a slightly higher yield of 4.1%. Food Empire did not pay any dividend in 2014 due to its  losses in that year brought on partly by unfavourable currency fluctuations and volatile geopolitical developments in its key markets.

Meanwhile, Nestlé (Malaysia) is offering a pedestrian dividend yield of only 1.8%, partly due to its high valuation (the company is valued at 29 times trailing earnings). On average, it seems that Team Malaysia has scored again.

Foolish Summary

Instant coffee is a hotly contested industry and the four aforementioned companies are some of the major players in the market. In summary, the Malaysian instant coffee stocks appear to have a stronger business than the ones from Singapore.

That said, none of what we’ve seen above should be taken as the final word on the investing merits of Super Group, Food Empire, Old Town, or Nestlé (Malaysia). A deeper look is needed before any investing decision can be reached.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns shares in Super Group and Food Empire.