The roots of Kawan Food Bhd can be traced back to the late 1970s when Mr. Gan Thiam Chai founded a sole proprietorship, Kian Guan Trading Co. and supplied traditional and homemade pastries namely ‘Kuih Bakul’ and ‘Kulit Popiah’ to local grocery shops and supermarkets. In 1984, Gan incorporated Kawan Food Manufacturing and started to manufacture ready-to-eat (RTE) frozen food products.
Subsequently, in 2005, Gan listed his businesses under Kawan Food Bhd on Bursa Malaysia. In 2006, Kawan Food Bhd was valued at RM 72.8 million in market capitalization. By 2017, its market capitalization has grown to RM 1.1 billion, a multiple of 13.5 times from 2006 levels. Despite its achievements, it had recently experienced a fall in stock prices, causing market capitalization to drop to RM 805.3 million, at the point of writing.
Thus, in this article, I’ll cover Kawan Food Bhd’s past achievements, current financial performances and provide an update on its latest developments in the future. They would be helpful to determine the cause of its drop in stock prices and to ascertain whether Kawan Food Bhd’s shares are truly a bargain or otherwise.
Here are the 8 major things that you need to know about Kawan Food before you invest.
#1: Stock Symbol
Ticker Symbol: KLSE: KAWAN / KLSE: 7216
Market Capitalization: RM 805.3 Million (11 June 2018)
Share Price: RM 2.24 (11 June 2018)
Industry: Consumer Products
Syariah Compliant: Yes
#2: The Business
Kawan Food Bhd produces a wide range of frozen local food products which include parathas, spring roll pastries, and chapatis from three factories where two of them are located in Shah Alam, Malaysia and the other one is situated in Nantong, China. In total, its manufacturing activities span across as much as 74,791 sq. m. in a built-up area.
#3: The Markets
Kawan Food Bhd derives RM 76.3 million or 38.9% of its sales from domestic customers in 2017. The remaining 61.1% of sales were generated from exports to key markets such as:
- North America: RM 58.7 million (29.9%)
- Asia (excluding Malaysia): RM 34.3 million (17.5%)
- Europe: RM 16.3 million (8.3%)
- Oceania: RM 10.2 million (5.2%)
- Africa: RM 0.5 million (0.3%)
#4: Financial Results
Since its listing, Kawan Food Bhd has achieved steady growth in revenue and earnings. Revenues have increased from RM 52.5 million in 2006 to RM 196.3 million in 2017. This, in turn, has contributed to growth in earnings from RM 8.2 million in 2006 to RM 29.1 million in 2017.
Kawan Food Bhd has achieved a 12-Year Return on Equity (ROE) average of 13.24% a year. This means, it had made, on average, RM 13.24 in earnings per annum from every RM 100.00 in shareholders’ equity over the last 12 years.
Source: Annual Reports of Kawan Food Bhd
#5: Balance Sheet Strength
As of 31 March 2018, Kawan Food Bhd has reported having long-term debt worth RM 16.9 million. Its current debt-to-equity ratio works out to be 5.6%, a low and manageable level. Kawan Food Bhd has increased its cash reserves from RM 10.6 million in 2006 to as high as RM 80.4 million in 2016. Then, its cash reserves dropped to RM 39.3 million as at 31 March 2018. This is mainly due to expenditures on its new factory in Pulau Indah, Klang (Point #6).
Source: Annual Reports of Kawan Food Bhd
#6: Future Prospects
In 2015, Kawan Food Bhd started the construction of its new state-of-the-art manufacturing factory in Pulau Indah, Klang. It is equipped with brand new modern facilities such as the Automated Storage & Retrieval System (ASRS) and innovative green technology to conserve water and energy consumption.
As of 31 March 2018, Kawan Food Bhd has completed the construction of its factory. The facility is now being commissioned and would be operational by July 2018. Concurrently, Kawan Food Bhd is developing new products which are to be manufactured in this new factory. The factory, which costs RM 150 million, has a total built-up area of 63,080 sq. m. and would be expanding its total production capacity of food products once it is fully operational.
Despite its long-term success, Kawan Food had recorded a drop in quarterly earnings over the last 3 quarters.
It seems that Kawan Food Bhd’s stock price has reflected its drop in earnings from Q3 2017 to Q1 2018.
Source: Google Finance
As I write, Kawan Food Bhd is trading at RM 2.24 a share.
From above, Kawan Food Bhd had recorded RM 27.681 million in earnings in the last 12 months. It has issued a total of 359.520 million ordinary shares. So, Kawan Food Bhd’s current earnings per share (EPS) is RM 0.077. At RM 2.24 in stock price, Kawan Food Bhd’s current P/E Ratio is 29.09.
As of 31 March 2018, Kawan Food Bhd has reported having net assets a share of RM 0.84. At RM 2.24 in stock price, its current P/B Ratio is 2.67. In 2017, it has declared and paid out RM 0.025 in dividends per share (DPS) in 2017. So, if it maintains its DPS at RM 0.025 in 2018, its expected dividend yield works out to be 1.12%.
#8: Investors Relation
For further enquiries or to request for additional investment information on Kawan Food Bhd’s Investors Relation matters, you may contact:
Mr. Teoh Soon Tek
Phone: +603 5511 8388
#9: Major Shareholders
As at 30 March 2018, Kawan Food Bhd’s major shareholders and their direct shareholdings are as followed:
– Gan Thiam Chai: 24.40%
– Narvee Foundation: 18.85%
– Gan Thiam Hock: 5.93%
– Kwan Soy Kay: 4.60%
– Kumpulan Wang Persaraan (Diperbadankan): 4.41%
Gan Thiam Chai is appointed as Executive Chairman of Kawan Food Bhd. His brother and wife, Gan Thiam Hock and Kwan Soy Kay are appointed as Executive Directors of the company. Gan’s nephew, Timothy Tan Heng Han is appointed as Managing Director of the company.
Nareshchandra Gordhandas Nagrecha (NGN) is a substantial shareholder of Kawan Food Bhd via his interest in Narvee Foundation. NGN is appointed as a non-independent non-executive director of the company.