This article first appeared in The Edge Malaysia Weekly on March 1, 2021 - March 7, 2021

KAWAN Food Bhd had a good 2020. As Movement Control Order (MCO) restrictions kept many at home during the pandemic, the frozen food manufacturer enjoyed brisk sales last year.

Kawan Food’s revenue increased 18.9% to RM254.7 million in FY2020, backed by strong domestic sales, while net profit more than doubled to RM28.02 million from the previous year.

In the new year, Kawan Food is helmed by new CEO Ng Hooi Khai, following the resignation of Timothy Tan, who intends to pursue his own business interests, according to a company filing with Bursa Malaysia.

Ng, who officially took on the CEO role on Jan 1, describes the company as a “gold mine”. “The first impression I had about Kawan Food was that it is a gold mine because the necessary investments have been made and the team is committed. At this point, I think it is a matter of how we can further optimise the business, its systems and capacity,” he says in an interview with The Edge.

While 2020 saw Kawan Food sales pick up as a whole, one segment of its business did suffer — food services, previously identified as one of the company’s strategic growth areas. This year, Ng is looking to see not just a recovery but growth of the segment.

“This segment will certainly pick up once the movement restrictions are lifted because it is very much related to restaurants and the hotel industry. This is one very strategic segment that we continue to look at to keep growing our business,” he says.

It is worth noting that the food services segment contributed about 5% to the company’s total revenue in the pre-pandemic days. About 45% of its revenue was from the local market, with the bulk of sales derived from modern trade.

Kawan Food’s export markets make up about half of the group’s revenue and its products are mainly distributed to traditional retailers. In these markets, it is looking to be more aggressive in seeking new customers, including in new regions.

“One of my non-negotiable missions as CEO is the growth of the business, that is, to open new markets and bring in more customers. We’re doing pretty well overseas, but we recognise that a lot of it depends on organic growth of existing customers and only a small percentage comes from new customers,” says Ng.

These efforts continue to be a work in progress.

“We were unable to develop this kind of new customers [in modern trade] overseas last year because of the global lockdown. This year, we hope that, through our partners in selected regions, we will be able to develop customers in different segments, in addition to our current traditional retailers,” he says, adding that Kawan Food hopes to seal a deal in the second quarter of this year.

Ng believes there is potential in Europe, where its presence is still small, constituting about 8% of total group revenue for FY2020 ended Dec 31. At the same time, the group has plans for the local market, which grew faster than its export markets last year.

“We see that with all this awareness of modern trade distributors [about convenience and eating at home], they will certainly put all these frozen foods — including ours — into their key growth strategy and we will ride that wave,” he says.

Ng believes the surge in sales last year will subside this year, but it is difficult to gauge the extent of it at this stage. “When we talk about local sales, the first reason it is hard to say is that we don’t know what will happen next regarding the MCO. We are hoping that things can return to normal because that means it will help our food services segment. Whether the relaxation of movement restrictions will cannibalise the retail or e-commerce business is difficult to quantify for now.”

It is worth noting that Kawan Food commands about 60% of the domestic market when it comes to frozen flatbread. Its e-commerce venture has got off to a good start and the company plans to venture away from the Klang Valley to places such as Ipoh, Penang and Johor in the near future.

Nevertheless, Ng says there is a need to optimise the logistics aspect of e-commerce. “We are dealing with frozen food and it is different from selling a piece of garment. You need to identify local depots to work with you and the logistics cost is not cheap when it comes to frozen food.

“This is something we are addressing. Otherwise, it could tarnish our image if our products leave the factory in perfect condition but reach the customer in a condition that is less than perfect.”

In 2020, its e-commerce business hit RM1 million in sales and the aim is to continue growing this segment. Ng is confident that the company can reach double-digit revenue growth this year, given the pipeline and visibility seen in 1Q2021, the MCO notwithstanding.

“I am positive about the foundation that Kawan Food has built over the years. We can hit double-digit growth this year and it is not an unreasonable ambition,” he says.

Kawan Food closed at RM2.10 last Thursday, which translates into a market capitalisation of RM755 million.

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