Kawan Food slides after analysts cut target price

On Friday, CIMB Research initiated a

KUALA LUMPUR: Shares of Kawan Food fell to a low of RM2.20 on Thursday – the lowest since June 4 -- after it reported weaker net profit and prompted analysts to cut the target price from RM3.14 to RM2.76.

At 10.44am, it was down 14 sen to RM2.31. There were 144,700 shares done.

The FBM KLCI was up 7.46 points or 0.41% to 1,805.57. Turnover was 846.97 million shares valued at RM607.07mil. There were 398 gainers, 289 losers and 323 counters unchanged.

CIMB Equities Research said at 25% of its full-year forecast, Kawan’s 1HFY18 net profit was below market and its expectations mainly due to weak US export revenue and strong RM/US$.

Kawan’s new factory, which started commercial operations in July, tripled the existing capacity of roti paratha and chapati.

“We cut our FY18F EPS by 31.5% to reflect delays in the commercial launch of the new factory from June to July this year, and also assume RM5mil start-up costs for the new factory. 

“We also cut FY19-20F by 9.3-12% to reflect expected higher marketing costs to boost topline growth. Stronger US$ environment (RM/US$ at 4.10 currently) should benefit export sales.

“TP falls from RM3.14 to RM2.76 and the stock remains an Add. Higher export revenue and strong US$/RM are potential re-rating catalysts,” the research house said.

CIMB Research said Kawan’s 1HFY18 revenue fell 3.8% on-year to RM98.7mil mainly due to weak US export revenue (offset by strong domestic revenue), higher promotional costs and stronger RM vs. US$ in 1HFY18 (average 1HFY18 RM/US$ was RM3.86 in 1H18 vs. RM3.07 in 1HFY17). 

Exports contributed around 60% of the group’s overall revenue in 1H18, mainly denominated in US$.

The research house said Kawan remains an Add. Its target price falls to RM2.76 based on unchanged 2019F 20 times P/E, a 20% discount to its 25 times P/E target for the F&B sector. 

Key potential re-rating catalysts are the successful take-off for the new factory, higher export revenue and strong US$/RM rate. Downside risks are continued weak US export sales.
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export revenue


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