Kawan Food to see strong earnings in second half

PETALING JAYA: Inflationary pressures such as labour, utility and logistics costs, as well as higher input prices, are unlikely to have an impact on Kawan Food Bhd’s earnings in the second half of 2022 (2H22).

It has the ability of mitigating the impact via higher economies of scale (higher production volume), better overall cost control and average selling price hikes that have been implemented by an average of 7% to 8% in the first quarter of the financial year ended 2022 (1Q22).

CGS-CIMB Research said it does not discount further hikes going forward and it also expects Kawan Food to continue to benefit from higher competitiveness from a weaker ringgit versus the US dollar.

In fact, in its report the research firm said that it expects stronger earnings in 2H22.

PublicInvest Research also expects Kawan Food to continue to post better results, premised on robust demand for frozen food and greater economies of scale to drive margin expansion.

It believes that Kawan Food will be able to maintain its profit margins as crude palm oil and wheat prices have tapered off from their peak in the second quarter of the financial year 2022 (2Q22).

Kawan Food also managed to obtain approval to bring in 400 foreign workers and is currently on-boarding its foreign workers to boost its operations.

For 2Q22, core net profit rose by 74.2% year-on-year to RM11.5mil. Net profit margin improved by 2.3% to 14.3%.

This was led by increased production efficiencies, given the stronger sales, absence of production disruptions due to Covid-19 infections, as well as the group’s ability to pass on the rising raw material costs to consumers.

PublicInvest Research continues to like Kawan Food for its double-digit earnings growth.

The research firm maintains its “outperform’’ call and target price (TP) of RM2.50 a share.

CGS-CIMB Research on the other hand raised its FY22 to FY24 earnings per share to account for higher export sales with a TP raised to RM2.68.

The research house noted that the company has a strong balance sheet, with net cash of RM70mil at the end of 2Q22.

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