Investors who have put their money into Kawan Food Bhd three years ago can proudly declare that their investment has appreciated 137.56% as its share price climbed had from RM1.76 on April 1, 2014, to RM4.18 by March 31, 2017 — The Edge Billion Ringgit Club membership cut-off date.
Between end-March and end-June this year, the price of the stock rose further to RM4.95 on June 30, implying an annualised total return of 53.7% over three years and three months. That included a handsome dividend of 157.50 sen per share, even before the stock price raced above the RM5 mark.
Perhaps the stellar returns are no surprise, given that the company’s earnings have been going from strength to strength during the period in review. Net profit grew at a three-year compound annual growth rate of 26.8% to RM32.98 million in FY2016 from RM16.2 million in FY2013.
It is worth noting that Kawan Food is still a family-run business. Founder and executive chairman Gan Thiam Chai, who has 24.4% equity interest, is still involved in the business.The managing director is his son-in-law, Timothy Tan, who was previously the director of international business, overseeing export markets.
The homegrown company, known for its frozen paratha and chapatti, has been making waves in the international market.
Its export markets have been a earnings growth driver in the last few years as the local market has been hit by weak consumer sentiment following the implementation of the Goods and Services Tax (GST), according to the company.
According to its 2016 annual report, 58% of its total sales revenue was derived from the export markets, with the US accounting for close to half of it.
That said, Kawan Food is among those that have benefited from the weakening ringgit in the last few years.
“As exports accounted for 58% of our total sales revenue, the weakening of the ringgit versus the US dollar last year provided some positive cushioning effect. We took the opportunity to provide rebates to some overseas customers to boost marketing activities and sales promotions in order to gain market share,” Kawan Food says in the annual report.
Its paratha is the largest sales contributor to overseas revenue at 65% last year, with chapatti coming in second at 23%.
It is commendable that the frozen food manufacturer did not increase its selling price across all markets last year despite an increase in major raw material prices. According to Kawan Food, wheat flour and margarine rose an average of 6% and 30% respectively in 2016 from a year ago.
“In Malaysia, post-GST, there was heightened inflationary pressure across the board with raw material, packing material and even labour costs increasing. The tough trading environment and poor trade sentiment did not allow us to pass on these increases to consumers,” the company says.
Kawan Food’s existing facilities in Malaysia for its key products have hit maximum capacity but it has a new facility in Pulau Indah. However, the commissioning of the new factory is taking a little longer than expected due to “unforeseen circumstances”, according to the company.
That aside, Kawan Food has also been busy with new product development. New-generation products will be rolled out when there is an increase in manufacturing space, the company says.
“We are hopeful that from this portfolio of new products, one or more new superstar champion products will emerge, similar to the emergence of paratha previously.”
As at March 31, 2017, the company had a net cash of RM47.45 million after taking into account total borrowings, giving it room to further delight shareholders.