• The demand for KFB’s products has been boosted since the Covid-19 pandemic as frozen food becomes a convenient mean of staying nourished.

• We expect KFB’s earnings to grow at 2-year CAGR of 15% from RM35.7m in FY21 to RM47.2m in FY23F driven by lockdowns and restricted movements in the company’s export markets.

• Maintain BUY and TP of RM2.78. This is based on 28x PER pegged on our new forecast FY21 EPS of 10 sen, following the recently-released 1Q21 earnings.

Export and local growth continued in 1QFY21.
Increasing global demand due to spread of the Covid-19 pandemic, coupled with lockdown environment is bene fiting KFB. Overall export revenue performance grew to RM36.1m (+11% qoq, +19% yoy) during 1Q21. Meanwhile, local revenue strengthened to RM29.3m (+5% qoq, 26% yoy) despite implementation of MCO. We estimate KFB’s top-line to grow by 10% yoy to RM307.8m in FY21, aided by stronger local contribution.

Existing and new products provide greater opportunities
We view its new products improving KFB’s overseas demand. In FY18-19, KFB released new low GI Paratha and Chapatti as well as new pizza-snack with various topping flavours. These line-up was well-received by its export market, especially in the US, as it provides a well mix of healthy and snack frozen food range to wider consumer crowd. Currently US sales contributed 47% of total export sales.

Riding on Online-shopping spree
The implementation of MCO has seen a rise in food service delivery. The increase in online demand enables KFB to strive further within its E commerce space. In FY20, KFB generated nearly RM1m (+668% yoy) from a mere RM0.1m a year ago for this channel. We think the overall improvement was also aided by its ERP system which integrates with its e-commerce solution to provide better operational efficiency to its products demand.

Earnings to rise by 15% next 2 years
Following its 1Q21 earnings, we had revised upwards our net profit forecast by 13% and 14% for FY21 and FY22 respectively, which was highlighted in our report published on Monday 1 June. We expect KFB’s earnings to grow at 2-year CAGR of 15% from RM35.7m in FY21 to RM47.2m in FY23F driven by improvement in demand for its products. Particularly as lockdowns and restricted movements are becoming the norm.

BUY call with TP of RM2.78.
The stock currently trades nearly -1SD at 19.7x forward PE. We reiterate our BUY call on the stock with TP to of RM2.78 based on 28x PE applied to FY21 EPS of 10 sen.

Covid-19: A blessing for KFB’s products
Covid-19 has now spread to 159.6m people worldwide, but its impact extends far beyond just those who are infected. It has become more difficult to manage, as the virus mutated and the new variant continues to ravage many countries. As a result several governments have re enacted mandatory lockdown on its citizens in 2021.

The impact changed people’s lifestyle to work from home (WFH) to ensure their safety. As food stockpiling accelerates, the demand for frozen food also picked up. According to the American Frozen Food Institute (AFFI) data, sales in frozen food has surged by 18% to US66b in 2020. Meanwhile in Malaysia, 63% respondents had been stocking up on frozen fast food during last year’s outbreak, based on survey by Vase.ai.

Frozen food requires less time for preparation, and its convenience especially for working adults to have it at home. We think, current confinement environment bodes well for KFB to capture this shift in demand. The popularity of its frozen food is well reflected across 37 countries. During the past 3 years, its Malaysia sales has grown by 13% CAGR whilst the export market has risen 2% in FY20.

Source: BIMB Securities Research - 2 Jun 2021