Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on January 17, 2019

KUALA LUMPUR: Kawan Food Bhd has warned its profit will remain under pressure this year owing to continuing depreciation of some RM20 million annually to its newly commissioned Pulau Indah facility.

“Our earnings before interest, taxes, depreciation and amortisation might remain the same, but profit after tax (PAT) will go down because of depreciation of the new factory. The cost (of the factory) is about RM200 million,” said managing director Timothy Tan.

“We moved in [to our Pulau Indah facility] in July last year, and have shut down our two factories in Shah Alam by the end of December. We are still trying to increase our output. The utilisation rate is not at an optimum yet,” Tan said.

In order to fill the gap left by the extra expenses, the group is ramping up sales and planning for more innovative product launches this year. It will also seek to tap into other channels, including the exports of chilled food products which are already “in the pipeline.”

Tan said this to reporters after the group announced its exclusive partnership with Australia Securities Exchange-listed biotechnology research firm, Holista CollTech Ltd, yesterday.

Both parties are teaming up to develop a range of low glycemic index (GI) flatbreads, with research and product trials commencing this month.

Tan said the group will start selling low GI roti canai in Malaysia by April; sales to its main export market, the US, will commence in June.

“We do not want to overprice ourselves because we want this product to be accessible... [But] with the slight [price] premium [of such products], I think it will help the bottomline a little. And that is why we need product innovation.

“We will be focusing on our top ten countries first. I can safely say that we will be launching in Singapore, Brunei, United Arab of Emirates this year ... The diabetes problem is real. Sales of white flour, globally, has actually gone down, so we think that’s a huge enough market,” Tan said.

The group has a total production capacity of 30,000 tonnes per annum and aims to hit 200 containers, or 4,000 tonnes of low GI products, in three years.

Kawan Food has seen 12 consecutive years of revenue growth. Its PAT more than doubled from RM13.55 million in FY12 to RM232.98 million in FY16, but saw the trend reversed in FY17 when the profit declined 11.7% to RM29.11 million owing to higher input costs and foreign exchange losses.

For the first nine months ended Sept 30, 2018, its cumulative net profit stood at RM17.20 million, down 26.1% against the same period last year, while revenue was 2.1% lower to RM147.17 million.

Thinly-traded, Kawan Food slid one sen or 0.52% to close at RM1.91 yesterday, valuing the company at RM686.68 million. The stock has lost about a third of its value over the past year.

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