PubIic Invest Research believes Kawan’s business outlook remains positive.
PETALING JAYA: Kawan Food Bhd
is likely to benefit from rising demand for its frozen foods in the local and export markets as the pressure of rising costs of living drive many to eat at home instead of dining out.
The stronger ringgit could dent export sales, but it will also help lower input costs, said Public Investment Bank Research (PubIic Invest Research).
The research house expects Kawan to see net gains due to the inflationary pressures on households.
“We believe the higher cost of living is a blessing in disguise for Kawan as consumers would likely choose to eat at home given that it is the more affordable option,” the research house said in a report on the frozen food producer.
Strong demand from foreign markets saw Kawan post 47.5% year-on-year (y-o-y) growth in second quarter (2Q24) net profit to RM8.4mil despite domestic demand falling some 21% in revenue quarter-on-quarter (q-o-q).
Kawan’s 2Q24 core net profit came in at RM9mil, which took its first half (1H24) core net profit of RM18.4mil, in line with PublicInvest Research and consensus estimates.
The research house believes Kawan’s business outlook remains positive.
“We continue to expect frozen-food demand to remain resilient as it generally offers greater convenience and a more affordable option compared with dining out,” it said.
BIMB Research is also on the same page in regards to Kawan as it expects the company to experience improved sales, supported by strong demand from Europe and North America.
“New products, such as Roti Boom, are gaining traction. Margins are expected to remain stable due to lower raw-material prices, particularly wheat which is expected to trend lower, coupled with a favourable US dollar/ringgit exchange rate,” the research firm added.
Notable in 2Q24 was Kawan’s sales to China falling by 50% y-o-y, though this was more than offset by exports to Europe and North America.
BIMB Research has upgraded Kawan to a “buy” with a target price of RM2 a share, with the valuation based on 18 times its price-earnings (PE) multiple pegged to financial year 2025 (FY25) earnings per share of 10.9 sen.
PublicInvest Research meanwhile maintained its “outperform” call on Kawan but at a lower target price of RM2.30 a share based on a lower PE multiple of 18 times pegged to FY25 earnings per share.
