• Kawan Food (KFB) temporarily ceasing its manufacturing facility in Pulau Indah, Klang starting from June 14th-21st 2021 on 78 positive Covid-19 cases among its foreign workers.

• We expect the impact of closure for 1 week is small i.e. <1% of production loss, hence we are maintaining our earnings forecast.

• Maintain BUY with TP RM2.78, implying PER of 28x pegged on FY21 EPS.

78 positive Covid-19 cases

KFB announced that the company recorded 78 Covid-19 cases on 11 June 2021 – the infected workers are mainly from production department at Pulau Indah plant. We gather KFB has 205 foreign workforce, thus the positive cases comprise 38% of the total foreign workforce. Following the MOH’s instructions, KFB will now temporary halt its operations for 1 week starting from June 14th-21st 2021 to perform deep sanitisation of the factory as well as its foreign hostels.

Prevention measures being undertaken

The company has adopted and will continue all possible and necessary SOPs at its operations, premises as well as hostels which include social distancing measures, temperature checks, proper hygiene, PPE usage, regular sanitisation and restricting visits by outsiders. KFB will continue to conduct periodic Covid-19 screening tests for both its local and foreign workers of its factories.

Delivery dates being discussed

We estimates the closure is expected to have minimal impact with less than 1% of annual production loss. This is on the premise that this month output at Pulau Indah plant can be covered by Nantong, China factory aided by sufficient finished goods at warehouse for the continuity plan. We have been informed the affected clients are from the US and the management is in the midst of discussion of new delivery dates for existing orders. KFB is now running on 2-shift production, and upon re-commencement of its manufacturing activities, it plans to increase production by 1 additional day to make up for the shortfall.

Maintain BUY, TP RM2.78

The stock currently trades nearly -1SD at 19.7x forward PE. We reiterate our BUY call with TP to of RM2.78 based on 28x PE. No change to our earnings forecasts as the impact from temporary factory closure is insignificant. We like Kawan Food for its i) healthy fundamental, net cash company and market leader position in frozen food arena in local and export market.

Source: BIMB Securities Research - 15 Jun 2021