• Overview. Kawan Food’s (KFB) 1QFY22 revenue and net profit increase to RM68.7m (5% yoy) and RM8.6 (5% yoy) respectively. This was mainly due to expansion of customer base in the local market and rising export sales especially to Europe (+48% yoy) and Asia (12% yoy). On qoq basis, revenue increase slightly by 2% qoq due to a recovery in export sales. However, net profit dropped by 15% qoq mainly due to higher overall operating cost. Hence profit margin dropped to 12.5% (-2.5 ppts qoq).

• Key Highlights. Since 1Q22, KFB has increased its selling prices by c.8% on average and expect to be fully reflected across entire clientele by 2Q22. Additionally, management is not discounting further price hikes if input costs continue to rise from current levels. Hence, we believe this will help to partially pass on the higher input cost and support its margin in FY22.

• Against estimates: Inline. 1QFY22’s net profit of RM8.6m were in-line with our and consensus full year forecast at 20.3%.

• Outlook. KFB’s FY22 prospect remain positive supported by higher sales from both local & export markets as well as securing new clients. The company continues to launch new products including plant-based which are expected to drive higher sales in Hotel, Restaurant and Café (HORECA)segment as well as capturing a wider range of consumer preference going forward.

• Our call. We made no changes to our earnings forecast. Reiterate our BUY call with an unchanged TP of RM2.36. Our valuation based on 20x PER pegged to FY22 EPS of 11.8 sen. We like KFB for its market leader position in the frozen food arena, healthy fundamentals, and strong balance sheet (net cash of RM69m as at 1QFY22).

Source: BIMB Securities Research - 24 May 2022