Kawan Food Bhd
(April 29, RM1.87)
Maintain buy with target price of RM2.10: Kawan Food Bhd (KFB) will consolidate its operations from Shah Alam to a new factory in Pulau Indah.

The new factory will have a production capacity five times that of its existing plants. KFB is constantly innovating its products for healthier and tastier food and beverages, and are now active in the United States, the United Kingdom, India and the Middle East.

Currently KFB derives 60% of its sales from overseas markets and we expect this to improve further once their capacity is enhanced. KFB is expected to register net earnings of RM25 million and RM29.7million for its financial year ending Dec 31, 2015 (FY15) and FY16 respectively.

Balance sheet is strong with net cash position of RM30.2million as at FY14. With a steady cash pile, solid cash flows and benefits from the weak ringgit, we believe the company is able to support its regular dividend payments and capital expenditure.

Revenue is expected to grow further upon completion of the new production site which will produce five times as much as the existing production figures. Hence, we have a “buy” recommendation at a new TP, based on 22 times price earnings ratio over FY15 earnings per share. — BIMB Securities Research, April  29

This article first appeared in The Edge Financial Daily, on April 30, 2015.