Kawan Food’s (Kawan) 2QFY21 net profit fell by 29% YoY to RM6.3m, dragged by the lower sales in both local and export markets. After adjusting for one-off items, Kawan’s 1HFY21 core net profit came in at RM14.1m. Cumulative 1HFY21 earnings were below our and consensus forecasts, accounting for 40% of our fullyear estimates. The discrepancy in our forecast was mainly due to the weakerthan-expected sales, given the lower production output as Kawan was only allowed to operate at 60% capacity under the Full Movement Control Order (FMCO). We cut our FY21-FY23F by 6-9% to account for the lower utilisation rate and higher raw material costs. Nevertheless, we are still positive on Kawan’s longterm prospects, underpinned by the robust demand for frozen food globally and Kawan’s plans to penetrate into new export markets in Europe, North America and South America. Following our earnings adjustment, we maintain our Outperform call on Kawan based on a 25x PER FY22F EPS and a lower TP of RM2.75 (previously RM3.00).
- Revenue decreased by 30.6% YoY to RM55m on lower production output. This was mainly due to the 2 weeks suspension of operations arising from the spike in Covid-19 cases in June, leading to a temporary stock shortage in the domestic market. Sales in Malaysia declined by 25.2% YoY to RM29m. We understand that Kawan managed to ramp up on its manufacturing activities upon re-commencement and the stock shortage issue has been resolved. On the export front, export sales fell by 35.8% YoY to RM26.1m, dragged by shortage of containers and deferment of shipment. Meanwhile, in tandem with the lower production output given the 60% production capacity during FMCO, Kawan’s 2QFY21 net profit fell by 29% YoY to RM6.3m.
- Outlook. We are anticipating a stronger 2H for Kawan Food as we gather that demand for frozen food is still robust. In addition, we are expecting Kawan’s utilisation rate to increase, supported by the increase in its workforce capacity to 80-100% as the group targets to complete its second dose of vaccination for its employees by end of August. The group is currently operating at 50- 55% utilisation rate. Moving forward, the Hotel, Restaurant and Café (Horeca) segment is expected to be one of the main growth drivers as the economy gradually reopens via new product launches to cater for the wide range of consumer preferences. Kawan remains committed to various cost optimisation efforts and further invest in automation to mitigate the higher raw material prices
Source: PublicInvest Research - 19 Aug 2021