Strong demand a boon for Kawan
PETALING JAYA: Kawan Food Bhd is expected to be driven by the resilient demand for its products.
The company, which manufactures frozen food, can also benefit from greater efficiencies in the midst of the heightened inflationary environment economically.
Public Invest Research said its most recent reported first-quarter (1Q) results were in line with its and consensus expectations, and this had accounted for 23.1% and 20.3% of their forecasts, respectively.
The research house noted that Kawan’s valuation looked undemanding, as it was currently trading at a price-to-earnings ratio (PER) of 16 times, which is almost minus one standard deviation of its three-year historical average.
“We are still positive on Kawan’s future outlook, which will be underpinned by strong demand for frozen food products and greater production efficiency to mitigate the impact on the rising raw material prices,” Public Invest Research said.
It has maintained its “outperform” call on the counter with a lower target price of RM2.50 from RM2.60 as it had lowered its PER multiple to 20 times from 25 times.
Meanwhile, CGS-CIMB said that it expects Kawan to post better earnings over the next nine months, especially in the second half of the 2022 year and this would be supported by by higher sales.
It also said that the company would benefit from strong demand while it had also secured more new export clients.
“Also, Kawan should benefit from raising its selling prices by up to 8% in 1Q. In our view, raising the selling prices should help to mitigate rising input costs which constituted about 45%-50% of total costs last year, further aided by better cost control,” CGS-CIMB said.
The research house is also expecting a new warehouse and facility to only begin operating in 1Q of next year.
“With the 1Q results in line with expectations, we reiterate our ‘add’ call and a target price of RM2.50 based on a 20 times 2023 forecast PER, which is a 40% discount to our 33.2 times 2023 forecast PER for the consumer sector,” CGS-CIMB said.