• We gathered several key updates from management regarding KFB’s business operation under the EMCO environment.

• KFB operations are not fully impacted by the EMCO due to its essential industry status, whereby the company is allowed to run with 60% workforce. Nonetheless, KFB had to close for 2 weeks for sanitization purpose.

• Our BUY call remains for KFB with a TP of RM2.78 based on FY21 PE of 28x. The stock currently trades at -1SD at 18.6x forward PE which we think is attractive.

Factory closure for 2 weeks

Under the EMCO, KFB’s products are considered essential, ie falling into the convenient food category. Its factory in Pulau Indah is allowed to continue operating as usual with 60% workforce limit. Notably, its operation was affected in June due to Covid-19 cases reported among its staff, resulting in KFB not able to carry out any delivery. The Pulau Indah factory was shut down for 2 weeks for sanitization between 14 and 21 June, as 78 staff were reported to have been infected with Covid-19. Management guided that during the closure KFB could not deliver any of its products to all the nationwide distributor points and also key accounts, resulting in a drastic drop in their stocks level. Also, KFB experienced some delays in export of their products due to the problems in the global supply chain and shipments.

Nonetheless, KFB is catching up to replenish its stock level with extra additional hours and have requested support from its Nantong factory to fill up sales order and stabilize the inventory level.

Sales demand still strong

The factory closure is estimated to result in a 20% loss of sales in June. However we were informed that operations are back to normal (limited by the EMCO). Meanwhile its frozen food demand remains unaffected due to lockdowns environment. Pizza snacks with various topping flavours have been popular with customers, whilst it’s new Malaysian Roti Chanai butter parathas have started to create consumers’ interest.

Apart from that, we gathered that its average online sales is well above RM100k per month and has grown by 30% yoy YTD, due to improved e-commerce website and EMCO conditions. We are maintaining our forecast and expect KFB’s earnings to grow at 2-year CAGR of 15% between FY21 and FY23F driven by products innovations and improvement in demand in convenient food.

Reiterate BUY; TP RM2.78

We reiterate BUY call for KFB with a TP of RM2.78 based on FY21 PE of 28x. The stock currently trades 18.6x, which is at -1SD is historical PE.

Source: BIMB Securities Research - 16 Jul 2021