• Overview. Kawan Food Berhad (KFB) 4QFY22 revenue increased by 7% YoY and 1% QoQ respectively supported by higher local sales (+26% YoY, +17% QoQ) thanks to festive season and customer stocking up for CNY. Export sales slowed down during the quarter however due to customers curtailing their orders. Meanwhile, core net profit increased by 6% YoY to RM10.3mn (excluding impairment on trade receivables and inventories write off) thanks to positive tax gain due to utilisation of tax incentive and reinvestment allowances.

• Key Highlights. Main commodity prices such as wheat, CPO and sugar have been slowly trending downwards from its peak in 2Q22. Together with higher economies of scale, we believe KFB would be able to mitigate higher other operating costs (i.e., labour and utilities) and maintain its profit margins in the next quarters.

• Against estimates: Inline. FY22’s core net profit of RM40.5mn (+25% YoY) was in-line with our and consensus forecast, accounting 96% and 99% of full year forecast respectively.

• Outlook. KFB’s FY23 prospect remain positive supported by higher sales from new clients, recovering export market as well as benefiting from China economic reopening (China market made up c.8% of total sales pre-pandemic). We understand that KFB expects orders from its new export customers to kick off from 2QFY23 onwards. Additionally, KFB new products launches including plantbased are expected to drive sales in the Hotel, Restaurant and Café (HORECA) segment as well as capturing a wider range of consumer preference going forward.

• Our call. We make no changes to our earnings forecast at this juncture. Reiterate a BUY call with unchanged TP of RM2.60 pegged at 20x PER to FY23F EPS of 13 sen. We continue to like KFB for its leading position in the frozen food arena, healthy fundamentals, and strong balance sheet (net cash of RM92.2mn as at 4QFY22).

Source: BIMB Securities Research - 23 Feb 2023