Kawan Food turns up the heat

Fang: 'We want to keep borrowings to a minimal.'

FROZEN food manufacturer Kawan Food Bhd is turning up the heat with its expansion drive, to stamp its mark in the sector.

The company, which has two factories in Shah Alam, will be consolidating its operations under one roof, by the end of 2015. The RM100mil exercise will see Kawan Food relocating its operations to a 15-acre site in Pulau Indah, Port Klang.

“We hope to be able to move in, in the third quarter of 2015,” chief executive officer Jon Fang tells StarBizWeek.

The new factory, which will cater to the company’s growth needs over the next 15 years, will surpass the combined size of its two existing factories in Shah Alam by almost five times.

It will feature state-of-the-art equipment including a modern warehousing system. “We will also have a new art refrigeration system that is environmentally friendly,” he says.

This expansion will see Kawan Food progressively spending around RM100mil over three to four years. Fang adds that the factory will be funded through internal funds as well as some borrowings, although he noted that Kawan Food would borrow less than 50% of the total cost.

“We want to keep borrowings to a minimal which is why we want to move cautiously. Less than 50% of the plant’s costs will be from borrowings,” he says.

The Pulau Indah factory will enable Kawan Food to increase capacity in its existing products, as well as leave room for new products. “We are looking to introduce new products in new categories that could have a lot more potential in Malaysia and other countries,” he says.

Its bestsellers currently include paratha and chapatti.

The company has been looking into introducing more “convenient” food. Fang declines to delve further into details, but says Kawan Food will stick to its core products.

“Our strength is in frozen foods. We will still be very much in that direction although there could be some diversification in our products,” he says.

The first and only flour-based frozen food company to be listed on Bursa Malaysia, Kawan Food also has a factory in Nantong, China that exports 75% of the volume produced, while the remainder 25% of products are sold in the Chinese market.

Fang says physical construction on the new factory in Pulau Indah will most likely commence in August. “We have just completed the foundation,” he adds.

The company’s warrants shot up 31% to 62 sen on June 12, spurring talk that a new investor could emerge. The warrants continued trending upwards, hitting a high of 74.5 sen on Wednesday. It closed the week at 70 sen.

The counter has risen about 130% in a year’s time to RM2.15.

Apart from the recent results announcement and expansion plans, Fang said he is not aware of any other corporate developments.

The major shareholder of Kawan Food is its founder and chairman Datuk Gan Thiam Chai who has a 33.08% direct stake.

The second largest shareholder, Goshenite Ltd, currently holds a 23.84% equity interest in the company and is an existing customer. This is the vehicle of Nareshchandra Gordhandas Nagrecha.

Goshenite acquired its stake in August 2009 from Kilat Kaca Sdn Bhd, whose owners are Datuk Ibrahim Ahmad and Tan Sri Mohd Ibrahim Mohd Zain, who sit on the board of Brahim’s Holdings Bhd.

In the first quarter for the period ended March 31, 2014 the company saw its net profit rise 32% to RM4.18mil from RM3.14mil in the same quarter last year, on the back of strong consumer demand.

Revenue during the quarter rose 21% from a year ago to RM34.37mil due to higher sales from most regions.

Fresh from the first quarter results, Fang hopes to maintain the level of growth for 2014. “The main thrusts are to develop our existing markets, and penetrate some new ones like South America and Africa. We are trying to be a bit more aggressive,” says Fang.

Kawan Food exports at least 70% of its manufactured volume to over 20 countries, but mainly to the United States, UK, Australia. New Zealand and the Gulf countries.

“Increasingly, we have been putting more into branding, both locally and in our export markets,” Fang says. It currently spends about 5% to 7% of its revenue on advertising and promotion.

Going forward, the company will also be spending more on research and development. “We believe in investing into our brand,” he adds.