Inter-Pacific Research expects Kawan Food to face more challenges in export markets, especially for the North America segment, despite sales picking up to countries such as China and Oceania.
PETALING JAYA: Kawan Food Bhd
is seeing softening demand for its products from overseas markets and this was reflected in the group’s earnings miss despite having a well-diversified global customer base, says Inter-Pacific Research.
It said Kawan Food’s revenue and profit after tax and minority interest (Patami) for the first half of financial year 2023 (1H23) were below the research firm’s expectations, making up only 43.6% and 31.5% of its full-year forecasts, respectively.
“Revenue decreased 16.1% year-on-year to RM67.5mil, from RM80.4mil in the same quarter last year, as the sales contribution from the North American and European markets showed significant declines of 49.1% and 22.2%, respectively.
“The operating expenses were maintained at a high level, which halved the pre-tax profit to RM6.3mil in this quarter.
“Patami declined by 47.3% to RM5.7mil, although lesser tax expenses were incurred,” said Inter-Pacific Research in a report.
The research firm expected Kawan Food to face more challenges in export markets, especially for the North America segment, despite sales picking up to countries such as China and Oceania.
However, it believed the group would continue to benefit from lower raw material prices such as crude palm oil and wheat, while improving its cost efficiency to help sustain its profit margin in the upcoming quarters.
With lower export sales seen, Inter-Pacific Research has trimmed its revenue forecasts for 2023 and 2024 by 11.3% and 13.4%, respectively.
Earnings estimates were also revised down by 20.1% and 22%, respectively, for that period.
Following this, it has downgraded its recommendation on the stock to “neutral” from “buy” with a lower target price of RM1.90.
The research firm continues to like Kawan Food for its overseas market exposure, ongoing initiatives for social and labour compliance, as well as robust research and development activities to expand product pipelines.
Key downside risks include an unfavourable currency movement, rising input costs and further cut in orders from foreign clients.
