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Kawan Food expects 5.0 pct decline in gross profit margin in Q1

25/05/2022 02:30 PM

KUALA LUMPUR, May 25 (Bernama) -- Kawan Food Bhd has estimated that higher input costs would lead to a 4.0-5.0 per cent decline in its gross profit margin in the first quarter of 2022 (Q1 2022).

However, the company stated that the impact will be mitigated by higher economies of scale, better cost control and selling price hikes.

It added that demand for its products in financial year 2022 (FY22) should remain robust with higher production volume to cater to an increase in orders.

In its research note today, CGS-CIMB Research (CGS-CIMB) said Kawan Food has not discounted further selling price hikes if raw material prices remain elevated.

The research house also noted that the company has applied to the government to employ 400 new foreign workers, which is expected to alleviate its labour shortage issues as it has been relying on contract workers to improve its production output since 2020.

Moving forward, CGS-CIMB said the company is expecting to see a rebound in export orders, with the easing of freight-related issues since end-Q1 2022.

“On top of that, the company has secured more new export customers and expects the maiden delivery of orders to these new export customers in the second half of 2022. 

“The increase in export orders is expected to offset a likely slowdown in local sales post-Raya festivities,” it said.

As such, CGS-CIMB has reiterated its ‘add’ call on Kawan Food’s shares, with a target price of RM2.50.

“We continue to like Kawan Food for its strong earnings prospects, growing global prospects for frozen food, its strong brand name in the frozen bread market globally, and its strong balance sheet (net cash of RM69 million at end-Q1 2022),” it added.

At 2 pm, Kawan Food’s shares were up by 0.6 per cent to RM1.67.




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