This article first appeared in The Edge Malaysia Weekly on December 9, 2024 - December 15, 2024

Kawan Food Bhd (KL:KAWAN), which has been in the production, distribution, sale and marketing of frozen food for more than 60 years, has always been a conservative company. It has two manufacturing facilities — one each in Selangor and China — and its products are available in more than 40 countries.

It has always paid dividends, having a sound balance sheet with cash of close to RM100 million and negligible borrowings. Now, after carving a name for itself in the food business, Kawan Food is taking a step into the world of IT.

In an announcement last week, the company said that, together with four individuals, including two board members of Kawan Food, it would invest in a special purpose vehicle (SPV) to supply and distribute IT equipment across the spectrum.

Kawan Food will own 51% of the SPV, called Regaltech Automation Sdn Bhd (RA). The rest of the shares in RA will be held by four individuals. They include Kawan Food’s founder and chairman emeritus Gan Thiam Chai, and current non-executive chairman David Lim.

Based on Kawan Food’s announcement, RA has been involved in the installation of servers for data centres in the last three years. And recently, it was granted agency and distribution rights in Malaysia by Super Micro Computer Inc, a company listed on Nasdaq.

Kawan Food’s objective is to diversify its business. In this respect, it is looking at the world of artificial intelligence, data centres, super computers and high-powered servers.

The company will subscribe for RM25 million preference shares in RA, and the money will be used for working capital to enable the company to sustain its operations and scale up the business. The preference shares will carry a dividend rate of 8% per annum.

Kawan Food can afford the investment, considering its strong cash position. However, what happens if the gestation period to recover its investments is longer than expected?

Moreover, investors put their money into Kawan Food not because of the IT business but for the food sector which, although not sexy, provides steady dividends.

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