PETALING JAYA: Kawan Food Bhd is targeting a revenue growth of 19.1% to RM300mil for the financial year ending Dec 31, 2022 (FY22), according to CGS-CIMB Research.

       The brokerage noted that the food manufacturer expected its top line growth to be driven by higher demand from existing customers as well as from new client acquisitions.

       Besides the potential from securing three new United States-based customers in the first half of the year, Kawan Food also plans to launch more products, including in the plant-based category.

       CGS-CIMB Research reiterated “add” on Kawan Food, with a target price of RM2.50. This represented a potential upside of about 56% from the counter’s closing price of RM1.60 last Friday.

       “We reiterate our positive view on Kawan Food’s prospects, backed by strong demand for its products, selling price hikes, and higher production volume,” it explained.

       Some of the Kawan Food products

       The brokerage said it liked Kawan Food for the company’s undemanding valuation – currently at 12.8 times forward price-earnings (P/E) ratio 2023 – which represented a 61.8% discount to the overall consumer sector’s average P/E 2023 of 41.4 times.

       In addition, the company is expected to see robust earnings expansion at a three-year compounded annual growth rate of 17% from FY21 to FY24.

       CGS-CIMB Research said it expected Kawan Food’s ongoing price hikes as well as greater economies of scale to drive margin expansion in FY22, despite rising input costs.

       “Kawan Food shared that it has raised its selling prices on average by 7%-8% since early first quarter of FY22, which will be fully reflected across its entire clientele by the second quarter of FY22.

       “In our view, this will help to pass on the recent increase in raw material costs (estimated to be 45%-50% of its total cost in FY21). Hence, we believe this will support margin expansion in FY22,” it explained.