KENANGA RESEARCH BUY RM1.

35
Target Price: RM1.51 Stock data
Market cap (RMm): Issued shares (m): 52-week range: 3-mth avg daily volume: Bloomberg code: YTD price chg: YTD KLCI chg: Est. free float: Major shareholders: Gan Thiam Chai: Goshenite Ltd: Gan Thiam Hock: Kwan Sok Kay: LTAT: KLCI No 162.0 120.0 RM1.00-RM1.67 39,203 shrs KFB MK -6.9% -1.8% 25.9% 33.3% 24.0% 8.4% 8.4% 5.1% FBM70 No

Results Note
01 March 2011

Kawan Food
Slightly Below Estimates
Kawan Foods FY10 revenue grew 5.2% to RM92.2m while core net profit increased 11.3% to RM13.8m, bringing in slightly below our estimates by 7.3%. 4QFY10 revenue fell 10.3% due to lower sales from Malaysia, rest of Asia, Europe and Oceania, but core net profit increased 20%. We are lowering our FY11 earnings forecast by 15% to RM15.1m, which decreases our TP to RM1.51 from RM1.77 (based on 12x FY11 EPS).

FBM70 FBM100 KLCI No No No

Consensus
FYE 31 Dec Net profit (RMm): EPS (sen): 2011E n.a. n.a. 2012E n.a. n.a.

Slightly below expectation. FY10 revenue grew 5.2% to RM92.2m while profit increased 11.3% to RM13.8m, bringing in slightly below our estimates. Full year revenue improved by 5.2% supported by strong sales growth in the domestic market at 11.3%, North America at 7.4% and Asia ex-Malaysia at 2.4%. However, European and Oceania market registered contraction of 9.0% and 1.6% respectively. QoQ revenue was lower by 10.3% but core net profit was up by 20%. QoQ EBIT margin is lower at 16% compared with 24% in the previous quarter, mainly resulted from lower sales volume, which caused by poorer economic of scale. Lower earnings estimate for FY11 and FY12. Given the lower EBIT margin in 4QFY10 and lower growth rate of revenue compared with the past, we lower our earnings projections by 15-23% over FY11E and FY12E to RM15.1m and RM16m to factor in weaker than earlier expected volume assumptions. Target price revised downwards to RM1.51, applying a 5-year sector average PE band of 12x PER to its FY11 EPS of 12.6 sen. We continue to maintain our BUY recommendation on KFB.

Forecast revision
FYE 31 Dec Prev. net profit (RMm): Revision (%): Net profit (RMm): 2011E 17.7 -15% 2012E 20.7 -23%

15.1

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Share price chart

The Research Team Tel: 603-2713 2292 research@kenanga.com.my

PP7004/02/2011(029201)

Results Highlights
FY 31 Dec (RMm) Revenue EBIT Finance costs Pretax profit Taxation Net profit Basic EPS (sen) DPS (sen) NTA/ share (RM) Net gearing (x) EBIT margin Pretax margin Net margin Effective tax rate 4QFY09 20.3 4.5 (0.1) 4.4 (0.1) 4.2 3.5 0.69 nm 22.0% 21.5% 20.8% 2.6% 1QFY10 23.2 4.6 (0.1) 4.5 (1.3) 3.2 2.7 1.4 0.70 nm 19.9% 19.3% 13.8% 28.4% 2QFY10 22.9 4.3 (0.1) 4.2 (0.9) 3.3 2.7 0.72 nm 18.8% 18.1% 14.2% 21.6% 3QFY10 24.3 5.8 (0.2) 5.7 (1.9) 3.8 3.1 0.75 nm 23.9% 23.3% 15.5% 33.5% 4QFY10 21.8 3.4 (0.1) 3.3 0.3 3.6 3.0 0.78 nm 15.7% 15.1% 16.4% -9.0% QoQ Chg -10.5% -41.1% -10.0% -42.0% -115.6% -5.0% -5.0% n.a. 4.1% n.a. -34.2% -35.2% 6.2% -126.9% YoY Chg 6.9% -23.5% 34.3% -24.9% -355.2% -15.5% -15.5% n.a. 12.6% n.a. -28.5% -29.8% -21.0% -439.8%

Segmental Breakdown
FYE: 31 Dec (RMm) Segmented Revenue M'sia Asia (excl. M'sia) Europe North America Oceania Africa Group Revenue 4QFY09 9.7 2.2 1.4 5.8 1.1 0.0 20.3 1QFY10 9.3 2.5 3.1 7.0 1.3 23.2 2QFY10 7.6 3.8 3.4 6.6 1.6 22.9 3QFY10 11.3 3.8 2.8 4.7 1.8 24.3 4QFY10 10.2 2.7 0.9 6.3 1.6 21.8 QoQ Chg -9.1% -30.6% -66.1% 35.0% -9.8% n.a. -10.5% YoY Chg 5.2% 19.1% -35.5% 8.4% 45.9% n.a. 6.9%

Earnings Estimates
FY 31 Dec (RMm) Revenue EBIT Pretax profit Core net profit Core EPS (sen) Core EPS growth (%) DPS (sen) NTA/ share (RM) Net gearing (x) PER (x) P/ NTA (x) Div. yield (%) EV/ EBITDA ROE (%) 2009 87.6 17.1 17.7 12.4 11.3 43.1% 3.0 0.69 net cash 10.3 2.0 2.2% 7.3 17.5% 2010 92.2 18.2 17.6 13.8 11.5 1.8% 3.0 0.78 net cash 11.5 1.7 2.2% 6.0 15.6% 2011E 98.0 20.0 19.4 15.1 12.6 9.5% 3.5 0.87 net cash 12.6 1.6 2.6% 5.6 15.3% 2012E 104.1 21.1 20.5 16.0 13.3 5.9% 4.0 0.96 net cash 13.3 1.4 3.0% 4.6 14.5% 2013E 110.6 22.3 21.7 16.9 14.1 5.8% 4.5 1.06 net cash 14.1 1.3 3.3% 3.7 13.9%

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do not make any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may read this document. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees. Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this document or any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/or employees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market or otherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies. Published and printed by: KENANGA INVESTMENT BANK BERHAD (15678-H) 8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Telephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenangaresearch.com Chan Ken Yew Associate Director

Kawan Food 01 March 2011

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