Kawan Food’s RM200m factory set to start in July

On Friday, CIMB Research initiated a

KUALA LUMPUR: Kawan Food’s new RM200mil factory in Pulau Indah is slated to start in July and is now waiting for a Halal certification from JAKIM, says CIMB Equities Research.

It said on Thursday the company indicated that almost all the required government approvals for its plant have been secured.

The new factory has three to four times the roti paratha and chapati production capacity of its existing factory.

The existing factory was already running at full capacity and Kawan was unable tointroduce other product varieties, as it could only focus on best-selling products. With just the existing factory, Kawan would also be unable to launch new products for export. 

CIMB Research cited that one new product Kawan is looking at launching is wholemeal paratha bread.

One of the exciting new products that Kawan would be producing at its new factory is “fresh frozen” breads. The breads would be frozen immediately after production, for export. 

At the shops, they would chilled at 10°C to ensure shelf life of two weeks. Such “fresh frozen” products have been gaining popularity in the US and Europe in the past few years. Kawan plans to launch its own “fresh frozen” bread product in the US in 3Q18.

“We expect domestic demand for Kawan’s bread products to remain strong this year with zero GST effective June 1. Its domestic revenue growth was flat in FY15 as domestic demand was negatively affected by the implementation of GST that year. 

“However, its domestic revenue recovered in FY16-17, as more households ate at home instead of going out. Kawan benefited from this trend. Domestic revenue constituted 39% of group revenue in FY17 (70% in FY12), with export sales rising over the past six years,” it said.

CIMB Research continues to like Kawan’s defensive food and beverage (F&B) business, and believes revenue growth will likely come from new products such as “fresh frozen” breads. 

“We maintain our EPS forecasts and target price (RM3.14), based on 20 times CY19F P/E (at a 20% discount to our 25 times target P/E for the F&B sector. Potential key re-rating catalysts are the successful take-off of the new factory and higher export revenue. A key downside risk is weak export sales,” it said.