KUALA LUMPUR: Kawan Food Bhd's outlook is rosy as demand for frozen food is still robust, driven by the higher in-house food consumption, Pubic Investment Bank Bhd (PublicInvest) said.
PublicInvest said the robust demand especially in Malaysia was due to the tightening of Movement Control Order (MCO) which encouraged consumers to stock up on frozen food.
In addition, the firm expects Kawan Food's exports to rise in tandem with its strategy in penetrating new export markets.
"We understand that the group is seeking to grow its presence in North America, South America and Europe," it said in a report today following a meeting with Kawan Food management.
The firm said Kawan remained committed to higher economies of scale and cost optimisation to mitigate the impact of higher raw material prices (45-50 per cent of product cost).
"The company has completed the installation of solar panels in the first quarter (Q1) 2021, and is expected to provide a cost savings of circa RM1 million per year," it said.
PublicInvest said a one-week closure of its Malaysia operations due to Covid-19 outbreak was unlikely to have a material impact on Kawan's earnings, given that the company had sufficient inventory.
The company will also be able to increase production with extended shifts upon re-commencement or diverting its production to its manufacturing base in Nantong, China.
"We estimate that for every one week's closure, Kawan earnings would fall by about two per cent
PublicInvest has maintained its "Outperform" call on Kawan Food, with an unchanged target price of RM3.00.