Is Current Dip in Share Price a Good Opportunity to Take Position in Kawan Food?

Kawan Food Berhad is an investment holding company. Its principal subsidiaries include Kawan Food Manufacturing Sdn Bhd and K.G. Pastry Marketing Sdn Bhd. The principal activities of its subsidiaries are manufacturing, trading, distributing and exporting of pastries and other food products. Kawan Food Berhad Group of companies is currently Malaysia’s leading exporter and largest manufacturer of frozen Asian food delicacies.

Based on full year of Financial Year (FY) 2015 results, Kawan Food achieved RM 165 million turnover, which is considered to be a small size enterprise based on turnover value. Other aspects of the company’s latest financial results are illustrated in the table below.

Over the latest past 5 Financial Year (FY), Kawan Food’s revenue has a smooth increasing trend from RM 104 million in FY2011 to RM 165 million in FY2015. This also translates to an average year to year growth of 12.23%.

Net profit wise, Kawan Food has an even more remarkable smooth increase from RM 14 million in FY2011 to RM 32 million in FY2015. This represents a 2.3 times increase or an average year to year increase of 22.96% within the 5 financial year window. Net profit margin wise, Kawan Food scores a high 19.32%, which is an excellent percentage for a manufacturing company. Return On equity (ROE) at 14.77% is a good score as well.

On company’s debt, Kawan Food has an acceptable total debt to equity ratio at 0.12, meaning 12% of its company’s value are from long and short term borrowings. The company’s current ratio and cash ratio are of very healthy levels of 3.85 and 2.16 respectively.

In terms of dividend, Kawan Food pays a low 0.60% dividend yield which is surely not favourable for dividend seekers.

In conclusion, Kawan Food is a small size enterprise with excellent fundamentals for having continuous increase in both revenue and net profit over the past 5 years, plus having low debt and being cash rich. This is in line with its share price having a smooth upward trend for many years

However recently there was a great dip of 21% in their FY2016 first quarter earnings when compared to the first quarter of FY2015. This is mainly due to a RM 3.3 million loss in foreign currency exchange loss. Therefore, it has affected the Trailing Twelve Months (TTM) financial figures (based on released quarterly results till Mar 2016), whereby the projected full year net profit for FY2016 has decrease to half of what was achieved in FY2015. This could be the reason for the recent short term share price drop.

Looking at a longer term, in FY 2015 the company’s revenue has 38% contributed by local market and remaining 62% is from foreign market such as North America (30%), Rest of Asia (15%), Europe (9%) etc. which are all subjected to foreign currency exchange fluctuation risk. As the usage of multiple currency are quite evenly spread and none of it being in the majority, it is quite difficult to predict whether the foreign currency exchange loss will continue to incur for the rest of FY2016. However, if we based on the good financial fundamental track record that the company has managed to up keep, the current dip in share price presents a good entry point to invest in this company for investors with the view of long term growth.

Next quarterly results announcement should be on the month of Nov 2016 for Q3 results.

iVolume Spread Analysis (iVSA) & comments based on iVSAChart software – Kawan Food

Based on 6-month weekly iVSAChart, Kawan Food has been drifting downwards for close to 2 months in Mar & Apr 2016, before strong hands emerge to absorb the selling with the stock well supported around RM3.05 level in the month of May 2016.

With Sign Of Strengths (green arrows) detected in May and June 2016 and supply exhausted, the stocks begin its uptrends in June and now hovering in a trend channel around the resistance level of RM3.70.

For investors with long term view, do look out for Sign Of Strengths (green arrows) before accumulating at around RM 3.60 levels.

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This article only serves as reference information and does not constitute a buy or sell call. Conduct your own research and assessment before deciding to buy or sell any stock. If you decide to buy or sell any stock, you are responsible for your own decision and associated risks.