Kawan Food - Roti Canai business!

Company : Kawan Food Berhad

 Business :

Manufacturing of frozen foods and export to overseas. The factories are located in Pulau Indah Klang and Nantong China. Export to 37 countries via distributorship, direct sales, e-Commerce, retailers and wholesalers. Their most common products are Spring Roll and Parahta. Some of their brands are as follow:   

Fundamental :

Financial healthy company with cash of RM 66 million. Bank borrowing (short + long term) is only RM 15.2 million. Another net cash company. Refer to their 2020 annual report.

 

5 years revenue :

The 5 years revenue is as below. There is a clear sign of growing revenue every year. I believe 2021 will be another great year for the company.

Profit after tax has been declining. Usually this the sign of stiff competition in the market. The lowest was in 2019. A quick check on the 2019 report, the low profit was due to additional depreciation of RM9.6 mil and wages. I am not too concerned on depreciation as it is just paper lost without affecting the cash flow.

 

Export business:

The export revenue contributes 56.3% to the revenue while domestic market is 43.7%. The export revenue has seen significant growth in all their key markets with USA contribute more RM50 million sales! The spread is very healthy and not relying on single market.

 

Surprising to know that Paratha is the most sellable product for export market! Lots of people like to eat Roti Canai :)

Domestic sales also seeing the rise in revenue. The growth in E-commerce is explosive although value is still small.

 

Spring roll is the core product domestically followed by Paratha product. See breakdown below.

Company products have gain Halal certification is key to sell capture Muslim market.

 

Q1 Result

 

Good Q1 result on both YoY & QoQ basis. The profit margin has also improved. Coming Q2 will be good as well as the food business is pretty stable. There is a rising demand from USA and domestic market. See their Q1 note below.

 Take note that they have placed approx. RM25 million in other investment. Interesting to know what type of investment. Perhaps should write to them for clarification?

 

Prospect:

Management is pretty good in navigating the effects of MCO and manage to capture the shift of consumer behavioural pattern. Thumbs up to the management!

I estimate better performance than last year, in the region of 10% increase. The risk will be raw material price hike such as plastic packaging and delay shipments for export market.

 

My view on share price:

Share price peak at RM2.80 in Sept last year then slowly moving down to RM2.00. Support level is RM1.74 and immediate resistance is RM2.20. Market sentiment is pretty low at this moment so I don’t expect the price to go up. Probably will go side way for sometime until Q2 result is announced. If price drops to support level then good to collect some.

 

Forecast earning & PE.

Industry PE is around 20-22. Forecast of 2021 of earning as follow:   

Q1	Q2	Q3	Q4	Total
2.28	3	1.8	1.8	8.88

At price of RM2.01 (22 Jun 2021), this will be PE of 23. A bit high and no big surprises. Dividen wise is a bit “Kiam Siap” company. However, it is good to note that big boss is buying back its own share. Hinting confident in the company?

 At time of writing, I don’t have any Kawan share but will wait for opportunity to buy if price drop.