KUALA LUMPUR: Kawan Food Bhd could post stronger earnings in the second half of its current financial year due to robust demand for frozen food, according to Public Investment Bank Bhd (PublicInvest).
PublicInvest analyst Wong Ling Ling expects Kawan Food's utilisation rate to increase, supported by the increase in its workforce capacity to 80 per cent to 100 per cent as the company aimed to complete its second dose of vaccination for its employees by the end of August.
"The group is currently operating at 50 per cent to 55 per cent utilisation rate. Moving forward, the Hotel, Restaurant and Café (Horeca) segment is expected to be one of the main growth drivers as the economy gradually reopens via new product launches to cater for the wide range of consumer preferences," she said in a research note today.
Wong added that Kawan Food remained committed to various cost optimisation efforts and further invest in automation to mitigate the higher raw material prices.
The company's net profit decreased 29.0 per cent in the second quarter (Q2) ended June 30, 2021 to RM6.28 million from RM8.85 million previously due to lower output as it was only allowed to operate at 60 per cent capacity under the Full Movement Control Order (FMCO).
Its Q2 revenue dropped 30.6 per cent to RM55.03 million from RM79.33 million due to the restricted production capacity, coupled with shortage of containers, deferment of shipment in export sales and temporary two-week suspension of operations arising from Covid-19 infected cases.
Cumulatively, PublicInvest said Kawan Food's first-half earnings were below its consensus forecasts, accounting for 40 per cent of the full- year estimates.
"The discrepancy in our forecast was mainly due to the weaker-than-expected sales, given the lower production output as Kawan Food was only allowed to operate at 60 per cent capacity under the FMCO."
PublicInvest cut Kawan Food's financial years 2021 to 2023 earnings by six per cent and nine per cent to account for the lower utilisation rate and higher raw material costs.
"Nevertheless, we are still positive on Kawan Food's long-term prospects, underpinned by the robust demand for frozen food globally and Kawan's plans to penetrate into new export markets in Europe, North America and South America."
Following its earnings adjustment, PublicInvest has maintained an "outperform" call on Kawan Food based on a 25 times price earnings ratio of financial year 2022 earnings per share and a lower target price of RM2.75.