Kawan
Food Berhad produces mainly frozen food which is easily found in retail
markets. As all of the company’s products are Halal, it is meant to target a
large portion of market share worldwide. Compared to other frozen products,
Kawan Food Berhad adopt continuous innovations to diversify its product line
and creates more possibility to satisfy the consumer’s taste and preference. In
terms of branding, names like Kawan and KG pastry dominate most of the
refrigerator in the retail markets which reflect its popularity indirectly.
With the fast pace life style nowadays, low fat frozen food like Paratha
capture the taste of urban folks pushing the sales to next level. Throughout
years of innovations, search of low cost production method and application of
Halal license, barriers of entries are heighten which decrease the entry of
potential competitors. However, recipes of these pastries are rather easily
imitated by others.
As 60% of the company’s revenue is generated from overseas,
this increases the company exposure to series of international events. Market
shares in certain emerging region are also difficult to penetrate as local
manufacturer possess cutting edge cost saving factors such as labor and raw
ingredients.
According to the cash flow in past ten years, factoring out
2005 and 2006, the annual growing compound rate is 7.89% which is above average
but not resilient enough. With decreasing profit, return on both ratio has
decreased as well with ROA on the sidelines while ROE is below standard
expectations. Cash management is also deploying a conservative utilization
which is beneficial at times of global uncertainties. My calculation of
intrinsic value after 10% margin of safety is 1.82 which is basically not far
from the RM1.8 level. It is an average and conservative company.
Stock: KAWAN Code: 7216
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