• We recently had a briefing with KFB’s CEO, Mr. Ng Hooi Khai pertaining to its 2QFY21 results and discussed key updates and outlook of the company.
• Earnings were slightly impacted by the plant shutdown, but the demand momentum shown in August-September up to next 3 months set to be better than FY20 performance.
• The Pulau Indah plant now operates at 100% capacity due to progressive vaccination in place. Prior, the plant was running at 60% for 2 and a half months. We reiterate BUY call with unchanged TP of RM2.78 at a PE of 28x ( FY21).

Fast vaccination progress is a positive

Management guided about 85% of workforce have successfully completed their 2nd dose as at August 14, 2021. Thanks to the country’s fast vaccination progress, on August 16, 2021 KFB was able to resumed operations at 100 % capacity as opposed to 60% in May/June. Apart from that, the RTK Antigen Tests is carried fortnightly, to meet the MITI new SOPs.

Stronger output anticipated ahead of additional manpower

In the past, KFB is running at about 1,400-1,500 m/tonne output which is relatively stagnant due to low manpower issues. With an additional 122 manpower acquired by stages from early September to Mid of October, the plant is expected to run at 1,700-1,800 m/t output. This 20-30% output increase would help sales to grow further.

Demand remains on uptrend

During the 2QFY21, export wise, Chapatti, Spring roll pastry and other segments are gaining ground and contributes 14%/7%/7% to the total export. Meanwhile, Spring roll pastry and Paratha are the key products in local market contributed 35% and 22% respectively, followed by Frozen Vege 18% and Bun & Bakery 14%.

Its sales have clearly rebounded in August with the momentum carrying on in September. There is no order cancellation in regards to the temporary shutdown, however shipment deferment remains as key issues. Local sales are showing some gains in market share after the resumption from shutdown.

Reiterate BUY with TP RM2.78

At current price the stock is undervalued and appear to be bottoming out in our view. We maintained our TP of RM2.78 on 28x PE (close to its 5-year mean) – which we feel is justified given its robust earnings registered despite the pandemic and a market leader position in frozen food arena. Hence we reiterate BUY call.

Source: BIMB Securities Research - 14 Sept 2021