Kawan’s frozen food demand rises due to stay-at-home order

Kawan is looking to grow its export sales by penetrating new export markets.

by ANIS HAZIM / Pic Source: Kawanfood.com

KAWAN Food Bhd’s outlook remains positive due to robust frozen food demand driven by higher in-house food consumption during the Movement Control Order (MCO).

Public Investment Bank Bhd (PublicInvest Research) analyst Wong Ling Ling said Kawan is looking to grow its export sales by penetrating new export markets.

However, she said the temporary closure of the group’s Malaysian operations due to the Covid-19 outbreak could negatively impact the company, albeit minimally.

“We believe that the impact on earnings will be minimal, given that Kawan is able to increase its production in Nantong, China, or extend shifts upon re-commencement of its Pulau Indah operations,” Wong said in a research report yesterday.

She said the one-week temporary closure from June 14-21, 2021, is unlikely to have a material impact on Kawan’s earnings, given that the group has sufficient inventory and would be able to increase production with extended shifts upon re-commencement or diverting its production to its manufacturing base in China.

PublicInvest Research estimated that Kawan’s earnings would fall by circa 2% for every one week’s closure.

The investment bank has maintained an ‘Outperform’ call on Kawan with an unchanged target price of RM3 based on 25 times the financial year 2022 forecast (FY22F).

Wong wrote the tightening of the MCO had encouraged consumers to stock up on frozen food, hence increasing demand.

She said Kawan’s exports are expected to rise in tandem with its strategy to penetrate new markets in North America, South America and Europe.

Wong stated that e-commerce sales have grown by 30%-40% in the past two months, albeit from a small base around 1% of FY20 sales, following the tightened MCO.

Nevertheless, she said the management remains committed to growing the e-commerce segment by increasing distribution points in Ipoh and Penang. Besides that, Wong expects Kawan’s hotel, restaurants and cafe (Horeca) segment to be one of the key development areas post-pandemic.

“The group is actively engaged in research and development (R&D) activities to launch new products such as pizzas, precooked meals and Greek pita to capture a wide range of consumer preferences.

“Note that Horeca accounts for circa 5% of Kawan’s revenue in FY20 (pre-Covid contribution was circa 10-15%),” she said.

The analyst also said the group remains committed to higher economies of scale and cost optimisation to mitigate the impact of higher raw material prices (45%-50% of product cost).

Kawan has completed the installation of the solar panels in its first quarter ended March 31, 2021, and is expected to provide a cost savings of about RM1 million per year.