THINK frozen roti chanai, paratha, chapatti, Malabar Roti or simply to enjoy a perfect mamak experience at home and Kawan Food Bhd will probably come to mind.
Against the backdrop of full movement control order (MCO) whereby home dining becomes the new norm, it is understandable why the frozen food product specialist has seen a rise in demand from both its export and domestic clients.
“Demand for Kawan Food’s products will continue to be strong as popularity for frozen food has increased, fuelled by the change in consumer consumption behaviour thanks to the COVID-19 pandemic,” projected PublicInvest Research analyst Wong Ling Ling in a company update.
“Despite disruption in its production facilities (due to its workers tested positive for COVID-19 fron June 14 to 28), there were no order cancellation with Kawan Food managing to capture additional 3-5% market share in the domestic market (its market share was at circa 60% before the COVID-19 pandemic).”
Despite having to face movement restriction, Kawan Food has also continued to focus on expanding its geographical footprint by penetrating into South America, a new market which is expected contribute positively in 4Q FY2021.
“While the manpower constraint previously has limited Kawan Food’s production for its new products (ie pizza and Malabar Roti), the group has managed to secure new workers and is looking to gradually increase its headcount to 410 from circa 300 going forward,” revealed PublicInvest Research.
“This should enable Kawan Food to ramp up its production for the new products given the positive response among the local consumers.”
As Kawan Food ramps up on its utilisation, the research house expects this to lead to better profit margins given the better production efficiency via higher economies of scale.
As such, it retained its “outperform” call on Kawan Food with an unchanged target price of RM2.75 based on a 25 times price-to-earnings ratio (PER) of FY2022 earnings per share (EPS).
Aside from PublicInvest Research, CGS-CIMB Research also reiterated its “add” rating on Kawan Food with an unchanged target price of RM2.50.
“We continue to like Kawan Food for its (i) strong earnings prospects (27.3% FY2020-2023F EPS CAGR [compound annual growth rate]); (ii) established brand name in the frozen bread market; and (iii) strong balance sheet (net cash of RM25.9 mil as of end-2Q 2021),” added its analyst Walter Aw.
At 3.07pm, Kawan Food was up 1 sen or 0.54% to RM1.87 with 60,000 shares traded, thus valuing the company at RM672 mil. – Sept 14, 2021