Maintain HOLD (TP: RM2.00). Kawan Food’s (KFB) 9MFY23 core net profitof RM23.1mn (-23.1% YoY) was in line with ours and consensusexpectations, accounting for 73% and 75% respectively. In 3QFY23, KFB’srevenue surged to RM79.2mn (+17% QoQ, +10% YoY), driven by a recoveryin overseas sales (+44.5% QoQ, 18.6% YoY). Nevertheless, core net profitfell by 16.9% YoY due to higher selling and distribution expenses, as well ashigher effective tax rate, resulting to a 3.6 ppts decline in the profit marginto 10.9%. Moving forward, despite stable sales growth from the exportmarket, we remain cautious on cost pressures due to the elevatedUSD/MYR currency exchange rates and the anticipation of higher rawmaterial as well as Advertising & Promotions (A&P) costs. Maintain a HOLD call with an unchanged TP of RM2.00, pegged at 20x PER to FY24F EPS of 10sen.
Key highlights. KFB’s 3QFY23 revenue surged to RM79.2mn (+17% QoQ,+10% YoY), propelled by a recovery in overseas sales (+44.5% QoQ, 18.6%YoY), which helped offset the decline in local sales (-8.7% qoQ, -0.4 YoY).Sales growth in the export market was led by North America (+59.4% QoQ,+3.3% YoY) and the Rest of Asia (+58.3% QoQ, +8.7% YoY). This growth islikely attributed to securing new export clients. Core net profit of RM8.6mnfell by 16.9% YoY mainly due to higher selling and distribution expenses.However, compared QoQ basis, core net profit increased by 31.7%, aligningwith higher revenue and lower operating expenses (i.e marketing) duringthis quarter.
Earnings Revision. No changes.
Outlook. Looking ahead, we anticipate a steady sales driven new exportclients and the new product offerings. However, we remain cautious onpotential cost pressures that could impact margins. This concern isprimarily attributed to the elevated USD/MYR currency exchange rates andthe projected higher commodity prices, such as wheat and raw sugar.Additionally, we expect increased spending on A&P due to heightenedcompetition in the market.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....