Kawan Food 'add', WCT 'buy'

Kawan Food Bhd

By CIMB Investment Bank Bhd


Target price: RM3.65

KAWAN Food Bhd is Malaysia’s largest frozen flour products producer. Its main products are roti paratha, chapatti and spring roll pastry. The domestic market makes up the largest share of the group’s revenue at 40%, while the United States is its largest export market at 30% of group revenue.

Kawan is constructing a new RM100mil factory in the “Selangor Halal Hub” (SHH) in Pulau Indah, which is expected to be completed by year-end. The new freezer warehouse would be five to six times larger than its existing factories in Shah Alam.

The management is banking on the new facility to help target new markets and develop new products. Kawan Food is funding the plant’s construction via internal funds and from warrant conversions.

“While it took Kawan Food six years to double its revenue from 2008, we expect the company to be able to double its revenue again in the next three years, thanks to its new production facility,” said CIMB Investment Bank Bhd.

If successfully secured, the tax incentives of setting up operations in SHH could result in minimal taxes being paid in the next three years, boosting the bottom line.

Kawan Food’s business is resilient and tends to thrive during periods of difficult economic conditions as more consumers choose to eat at home rather than dine out.

Export sales, mostly in US dollars, make up about 60% of revenue, while raw materials like flour are mostly denominated in ringgit.

As such, a weaker ringgit is favourable to the company.

Compared with its food and beverage (F&B) peers, Kawan Food’s valuation is attractive at a 2016 price-earnings ratio of 14.6 times, the lowest among the research house’s F&B stock coverage. In addition, Kawan Food’s 40% three-year earnings per share compound annual growth rate is the highest in the industry.

WCT Holdings Bhd

By UOB KayHian Research

Buy (maintain)

Target price: RM2.05

UOB KayHian Research recently hosted WCT Holdings Bhd for a group luncheon which was attended by local fund managers and analysts.

In 2015, 75% of new jobs secured were infrastructure related, which WCT prefers over building jobs given the margin advantage. Moving into 2016, it has set a RM2bil target for new construction orders, which would mainly be infrastructure-related jobs.

In the near term, the company expects results for upcoming tenders to be announced, which includes the civil works at Rapid in Pengerang, Johor, infrastructure at the Tun Razak Exchange, earthworks at Kwasa Damansara and infrastructure for the KL118, which have a cumulative value of RM2bil.

UOB thinks WCT stands a good chance of securing more Rapid and Kwasa Damansara related jobs as it is already one of the key contractors for the ongoing jobs in these areas.

It expects WCT’s construction division’s margins to improve, particularly in the second half of the financial year ending Dec 31, 2016 as its ongoing building jobs are completed and the recently-awarded infrastructure related jobs begin contributing.

The group’s maiden OUG development will have three condominiums, a mall, office towers and hotel.

The launch for the first residential tower is expected to be some time in the first quarter, offering about 419 units of condominiums with an indicative price of about RM850 per sq ft, followed by the launch of a second residential tower, both having combined gross development value (GDV) of RM600mil.

UOB maintains a “buy” call on WCT with target price of RM2.05, implying 15.8 times 2017 price-earnings.

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Business , Kawan Food , F&B , analyst report


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