KAWAN FOOD BERHAD

 

Kawan Food Berhad (Consumer F&B)

 Sales demand strong

Even though the factory closure but I expect 20% loss of sales in June. Operations are back to normal by with only allowed 60% workforce. Due to surges cases and uncertainty lockdown environment, frozen food demand remains strong and unaffected. Kawan sells various of pizza flavours and new Roti Chanai butter parathas have attract consumer to buy.

Besides that, average online sales is around RM100k per month and has grown by 30% yoy because of EMCO and improved e-commerce website. Expect earnings grow to 2 years CAGR of 15% from FY21 to FY23 which driven by innovations and improvement in demand in convenient food.

 

Temporarily closure

Kawan temporarily close its manufacturing in Pulau Indah, Klang starting from 14^th to 21th June 2021. The impact of closure for 1 week is small. (reduce 1% of production loss)

 

Delivery dates might delay.

The closure is expected to have minimal impact with less than 1% of annual production loss. In June output at Pulau Indah plant can be covered by Nantong in China factory aided by sufficient finished goods at warehouse for the continuity plan. The clients from US and the management are in the midst of discussion of new delivery dates for existing orders. Currently, Kawan is running 2 shift production and recommencement of its manufacturing activities. It plans to increase production by 1 additional day to make up for the shortfall.

 

Covid-19 favour Kawan’s products

Covid-19 has spread to 194.8m people over the world. It has become more difficult to manage, as the virus keep changing and new variant continues to ravage many countries. There are many countries lockdown due to cases increases. The impact changed people’s lifestyle to WFH also increase the demand for frozen food. According to American Frozen Food Institute data, sales in frozen food has surged by 18% in 2020. Frozen food requires less time to prepare and its convenience especially for working adults.

 

 

Sales Growth

The most popular frozen food product is paratha. Kawan has consistently improved it range of frozen food products with new innovations. ERP system at Pulau Indah plant to coordinate better production, resources, inventories and others. Kawan also use data analytics to forecast, produce, maintain products line up and minimize the loss of unpopular products according to the management.

North American (US and Canada) region holds 47% of its total export market sales, with sales improving by 10% in FY20 owning to the pandemic driven demand and distributor issues being resolved. Kawan export still has room to grow, company intends to tap into mainstream retail market whilst pursing uncovered region (Latin American, Chile and Mexico). Its ecommerce sales grew 668% in FY20, benefiting from ERP system integration with e-commerce solution. Management guided e-commerce sales to continue to record around RM100K per month driven by strong online shopping.