IT may come as a pleasant surprise to many that homegrown frozen paratha and chapati maker Kawan Food Bhd has extended its reach across 35 countries worldwide. The company now derives 55% of its revenue from overseas, with the domestic market making up the rest.

The US is Kawan Food’s largest export market, accounting for half of its total export revenue.

In an interview with The Edge, CEO Jon Fang reveals that Kawan Food’s target market in the US is the South Asian community as its Kawan brand of frozen paratha and chapati is popular with them.

Its oriental products such as Chinese buns and glutinous rice balls, meanwhile, have a following among the Southeast Asian community living there.

While the frozen flatbread manufacturer’s growth over the last few years has been spurred by both the domestic and export markets, Fang expects to see more robust growth coming from overseas going forward.

Kawan Food director of international business Timothy Tan, who was also present at the interview, says there is much room for growth, particularly in European countries.

He believes the products, being halal certified, will give the company an edge when it comes to marketing them to the growing Muslim community from North America and Middle East who have settled down in Europe.

Most people may not know that Kawan Food’s founder and executive chairman, Gan Thiam Chai, had actually started off exporting spring roll pastries before frozen paratha even came in the picture. It was through the suggestion of friends residing in the UK, who were craving for paratha, that Gan began looking for ways to automate paratha-making. He ended up becoming the first in the industry to master automated paratha-making.

Even though Kawan Food’s frozen paratha and chapati are big hits, the company does not plan to rest on its laurels — it has a ready pipeline of new product categories waiting to be launched.

It plans to introduce more value-added food, or higher-convenience-level food, when it moves into its new facility in Pulau Indah, Selangor, by the end of this year.

“Now you have to cook the flatbreads, but once we have the new facility, we are going to move into higher convenience. Rather than having to cook it in its raw form, it (the new product) can be reheated in an oven or in some instances, in a microwave,” explains Fang.

“Generally, our direction going forward is to have more value-added products and higher-convenience-level food offerings. So these will provide the company with more growth on top of our existing products.”

Fang is confident that the company’s revenue and net profit will continue to grow in the years to come, helped by new markets and product offerings. About 60% of its revenue is now derived from frozen paratha and chapati, while the rest is from other products.

Kawan Food’s existing facilities are near their maximum production capacity, thus the need for the new facility in Pulau Indah. The new facility will have about five times the existing capacity of its two facilities in Shah Alam, says Fan.

“Fingers crossed, it should be fully commissioned by next year and then, all these new products will come in,” he adds.

Kawan Food’s net profit for the financial year ended Dec 31, 2014, climbed 28.9% to RM20.85 million from a year ago, on the back of an 18% increase in revenue to RM149.52 million.

Like most export-oriented companies in Malaysia, Kawan Food has benefited from the weaker ringgit against the greenback since last September given that most of its export transactions are in US dollars, says Fang. Nevertheless, he points out that the difference in foreign exchange has not been a significant factor in its improved performance.

“We’re just concerned that down the line, with the expansion going on now, there will be a lot of the equipment that we will buy in US dollars. In that sense, there is some balancing there. But it is fortunate that our revenue from exports is growing quite well, so I think that will help to neutralise the impact of these purchases,” explains Fang.

Kawan Food’s share price has climbed 40% over one year to last Thursday. Nevertheless, those looking to invest in the frozen food manufacturer will be disappointed to know that the shares are tightly held.

Its largest shareholder is Gan with 32.81% equity interest while Goshenite Ltd holds 23.65%.

Last December, Kawan Food embarked on a bonus issue of 60.78 million new shares on the basis of one bonus issue for every two existing shares.

At present, the company’s balance sheet shows an existing reserve of RM63.22 million while its shares outstanding amount to 182.7 million, implying that there could be room for more bonus issues.

When asked if there are any plans to increase liquidity, Fang says the company is exploring fundraising for its new facility.

“For the expansion of the new facility, there will be a split between going for debt and equity. If we can have a good balance, then we don’t have to pay so much bank interest, especially in this age of uncertainty. We are still working on this,” says Fang.

The company isn’t widely tracked by analysts. BIMB Securities has pegged a “buy” call and a target price of RM1.95 on the stock. This implies an upside potential of 21% from its closing price of RM1.61 last Thursday.

This article first appeared in The Edge Malaysia Weekly, on March 23 - 29, 2015.

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