KUALA LUMPUR – The temporary closure of Kawan Food Bhd’s plant in Klang to prevent the spread of Covid-19 is expected to have only a minimal impact on CGS-CIMB Research’s earnings estimate for the frozen food manufacturer for this financial year ending December 31, 2021 (FY21).
CGS-CIMB said the group, which also operates a plant in Nantong, China, had existing inventories that could cover the production loss from its Malaysia operations for a week and could increase its production with extended shifts on re-commencement of manufacturing activities.
“Note that we estimate that Kawan Food’s utilisation rate was around 68%-70% in the first quarter of 2021,” it added.
Yesterday, Kawan Food announced the temporary suspension of its Malaysia operations from June 14 to June 21, 2021, as instructed by the Health Ministry, on discovery of 78 Covid-19 positive cases among its workers as at June 11.
During this period, Kawan Food will perform deep sanitation of its factories and hostels in the country.
CGS-CIMB noted that Kawan Food’s operations in China, which constituted about 13.5% of its revenue in the last financial year, were unaffected.
Nevertheless, based on CGS-CIMB’s back-of-the envelope calculations, for every week that its Malaysian facilities are not operating, it will impact the brokerage firm’s FY21 revenue and net profit forecasts by 3.5% and 2.5%, respectively.
“This is assuming all things are equal, including no additional shifts upon resumption of operations to offset the production loss during the period,” said CGS-CIMB.
Reiterating its “add” call on Kawan Food, CGS-CIMB said it was not making any changes to its FY21-23 earnings per share estimates pending further updates from the company. – Bernama, June 15, 2021
