dah mau terbang ka? Strong demand a boon for Kawan TheStar Wed, May 25, 2022 12:00am - 12 hours
PETALING JAYA: Kawan Food Bhd is expected to be driven by the resilient demand for its products.
The company, which manufactures frozen food, can also benefit from greater efficiencies in the midst of the heightened inflationary environment economically.
Public Invest Research said its most recent reported first-quarter (1Q) results were in line with its and consensus expectations, and this had accounted for 23.1% and 20.3% of their forecasts, respectively.
The research house noted that Kawan’s valuation looked undemanding, as it was currently trading at a price-to-earnings ratio (PER) of 16 times, which is almost minus one standard deviation of its three-year historical average.
Kawan Food products Kawan Food products
“We are still positive on Kawan’s future outlook, which will be underpinned by strong demand for frozen food products and greater production efficiency to mitigate the impact on the rising raw material prices,” Public Invest Research said.
It has maintained its “outperform” call on the counter with a lower target price of RM2.50 from RM2.60 as it had lowered its PER multiple to 20 times from 25 times.
Meanwhile, CGS-CIMB said that it expects Kawan to post better earnings over the next nine months, especially in the second half of the 2022 year and this would be supported by by higher sales.
It also said that the company would benefit from strong demand while it had also secured more new export clients.
“Also, Kawan should benefit from raising its selling prices by up to 8% in 1Q. In our view, raising the selling prices should help to mitigate rising input costs which constituted about 45%-50% of total costs last year, further aided by better cost control,” CGS-CIMB said.
The research house is also expecting a new warehouse and facility to only begin operating in 1Q of next year.
“With the 1Q results in line with expectations, we reiterate our ‘add’ call and a target price of RM2.50 based on a 20 times 2023 forecast PER, which is a 40% discount to our 33.2 times 2023 forecast PER for the consumer sector,” CGS-CIMB said.
DEALINGS IN LISTED SECURITIES (CHAPTER 14 OF LISTING REQUIREMENTS) : DEALINGS DURING CLOSED PERIOD KAWAN FOOD BERHAD
Subject Dealings During Closed Period Date of announcement made for "Intention to Deal During Closed Period" 26 Apr 2022
No Salutation Name Designation Description Of "Others" Designation 1 MR GAN THIAM CHAI Chairman & Executive Director Type of Transaction Acquired Description of "Others" Type of Transaction Date of Transaction 23 May 2022 Description of Securities Ordinary Shares (Direct Interest) No of Securities Transacted 6,600 % of Securities Transacted 0.002 Consideration Malaysian Ringgit (MYR) 1.650
Remarks : 1. The percentage of holdings is based on the total number of issued shares of 358,637,660 (excluding 882,100 Treasury Shares).
2. Deemed interested in the shares by virtue of Section 59 of the Companies Act 2016, held through his children, namely Gan Ka Hui and Gan Ka Ooi who holds 4,700,300 and 6,011,300 ordinary shares respectively, representing a total of 2.987% in the shareholdings of the Company.
As the Malaysia’s economy is keeping its solid momentum, assisted by the transition to the Endemic phase of Covid- 19, the Group has observed an encouraging rebound in export sales and uptrend sales in modern trade and HORECA. Ongoing raw material costs hike mainly due to the volatile global markets leads to the higher commodity price, the Group has initiated the hedging to key raw materials price that significantly mitigating the risk of margin erosion. The Group will continue to remain competitive and seek opportunities to grow its business. Despite the challenges on higher raw material prices, with the cash reserves that allow the Group to capitalise on suitable M&A opportunities, that will adequately support the expansion plans moving forward. The Group is expecting the issue of labor shortage to be resolved in Q2 by increasing the workforce capacity in 2022 in line with government policies. This in turn has provided the opportunity to generate higher revenue while at the same time would be able to drive the readiness to launch more new healthy food products such as plant-based meals. The Group continuously focuses in ensuring the operational efficiencies and cost optimization in our business. Adding to that, the implementation of Industry 4.0 in strategic phases has notably enhanced the production of output and manufacturing capability.
Kawan Food Catalysts 1. Drop in raw material cost - palm oil price has been dropping since Q2 2022 2. Recession-proof industry - poor people will eat more frozen food instead of fresh food to save costs 3. Their Roti Canai seriously tastes delicious 4. Acquisition target of major F&B players like Nestle Malaysia 5. Good MGMT. MR GAN THIAM CHAI is a smart businessman.
Kawan Food is one of the few stocks analysts should go overweight on. Price target upgrade to RM3.50 based on reverse DCF analysis. Dumb sell side analysts trying to predict cash flow will fail. No need to use complex revenue forecasting model I am using a different valuation method. I believe that Kawan Food at RM2.24 still presents the best opportunity from a risk-reward perspective.
Long term, based on bull case, we think that Kawan Food will be the No 1 player in the Malaysian Food & Beverages. Management provided very good guidance for the next few quarters forward. I won't sell Kawan Food yet.
KUALA LUMPUR (April 21): Convenience food manufacturer Kawan Food Bhd is buying five parcels of land measuring 7.08 acres in Shah Alam, Selangor for a total of RM50.46 million, as part of its expansion plans.
Kawan Food said it intends to build a second manufacturing facility for its operations on the proposed site. It plans to expand its cold room facility to include a warehouse and cold chain distribution for in-house and external products, equipped with new technology such as robotic automated warehouse to cater for frozen, chilled and ambient food products.
"This would enable Kawan Food to explore new ideas and growing product diversity for new markets. Also, with the strategic location in Shah Alam, there is potential reduction in logistic cost for deliveries in local market," it said in a bourse filing on Thursday (April 21).
Kawan Food's wholly-owned subsidiary Kawan Food Manufacturing Sdn Bhd (KFMSB) has entered into a sale and purchase agreement with RGP Warehouse Solutions Sdn Bhd to buy three parcels of land totalling 4.07 acres for RM28.94 million or RM163.199 per sq ft. KFMSB is also in the process of acquiring another two parcels of land totalling 3.01 acres from Perbadanan Kemajuan Negeri Selangor (PKNS) for RM21.52 million.
The group said it will finance the land acquisition through internal funds and/or external borrowings.
"The acquisition is in line with Kawan Food's corporate strategy of expanding and growing its operations, and diversification, as well as exploring and developing new segments of the industry, manufacturing a variety of products including plant-based products, etc, in chilled ambience, aside from frozen food. This business strategy will provide an opportunity for Kawan Food to create greater economic value and increase the earnings potential of the group," it added.
Barring any unforeseen circumstances, the land acquisition is expected to be completed by the last quarter of 2022. The acquisition is not expected to have any material effect on the group's gearing for the financial year ending Dec 31, 2022.
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....