Journey to Wealth
Kawan Food - UNDERPERFORM - 31 May 2012
Period 1Q12
Actual vs. Expectations
The 1Q12 net profit of RM2.1m came in below our expectations, making up just 16% of our FY12E net profit of RM12.8m.
The lower earnings surprise was largely attributed to lower sales registered from the North America and Europe regions.
Dividends An interim dividend of 2.4 sen (gross) was declared in early May.
Key Result Highlights
YoY, the 1Q12 revenue decreased 8.9% on the back of lower sales registered from the North America (-29% YoY) and Europe (-16% YoY) regions. Revenue for the quarter trailed our estimates and accounted for 24% of our FY12E estimate of RM98m.
YoY, the earnings (-30%) were bogged down by higher advertisement and promotion expenses from the Malaysian market, where there was just a meagre 3% rise in revenue from the domestic segment.
On a QoQ basis, the PBT declined by 55% to RM2.7m predominantly due to the high benchmark set in 4Q11 as well as lower sales and unfavourable MYR/USD exchange rate in 1Q12, which caused a dent in the group's export sales and margins.
Outlook The outlook for Kawan Food is likely to remain uncertain due to wild swings in the foreign exchange rate as well as renewed concerns on the European debt crisis.
Going into 2Q12, the group is likely to have a more favourable USD/MYR rate, having risen to RM3.16 at the time of writing. On a medium term horizon however, our in-house estimate continues to have a downward bias view of the USD, which could dampen Kawan Food's future revenue and NP.
Change to Forecasts
No changes to our FY12-13E revenue and NP as we expect the group's revenue and advertising expenses to normalise going into the remainder of the year.
Rating MAINTAIN UNDERPERFORM
We are maintaining our Underperform rating on Kawan Food in light of the potential headwinds highlighted above.
Valuation Maintaining our TP for the stock at RM 0.86 based on a 5-year average PER of 8.9x over its FY12 Diluted EPS of 9.7 sen. Risks ' Volatility in the currency markets.
Source: Kenanga
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