Expect price hikes and higher sales volume
? FY21 core net profit of RM32.1m (+15.5% yoy) was within expectations at 101% of our and 98% of Bloomberg consensus full-year estimates.
? We expect Kawan to post a 16% yoy rise in FY22 net profit, from: i) higher production volume, ii) selling price hikes and iii) greater economies of scale.
? Maintain Add, with a lower TP of RM2.50 (20x CY23F P/E).
FY21: Core net profit up 15.5% yoy; within expectations
4Q21 core net profit came in at RM10.3m (+31.2% yoy), after accounting for one-off losses of RM0.2m (mainly inventories written off of RM0.3m, provisions for slow-moving inventories of RM0.2m and gain on disposal on quoted shares of RM0.4m). This brought FY21 core net profit to RM32.1m (+15.5% yoy), which was in-line with expectations.
4Q21: Buoyed by higher export sales
4Q21 revenue and core net profit rose qoq by 5.2% and 42.7%, respectively. This was thanks to: i) higher export sales (+28.7% qoq) which has better profitability vs local sales, ii) better cost control and iii) higher economies of scale. Overall, FY21 revenue waned 1.2% yoy to RM252m as lower export sales (-9.2% yoy) more than offset higher local sales (+9.3% yoy). FY21 EBITDA margins rose 2.9% pts yoy to 22.2%, thanks to lower marketing costs and better cost efficiencies. Hence, FY21 core net profit grew to RM32.1m (+15.5% yoy), further aided by lower tax rate (+1% pt yoy) and higher interest income (+10.1% yoy).
Raising selling prices and launching more profitable new products
We gather that Kawan has raised its domestic (48.3% of FY21 sales) selling prices by 10-15% from Feb 2022 onwards, mainly to partially pass on the increase in its raw material prices to customers. To recap, Kawan has gradually raised its export selling prices since the start of 4Q21 (51.7% of FY21 sales). We expect these price hikes to aid in passing on the recent rise in input prices (35-40% of total costs). Also, it is looking to launch more new products in the near term, products with higher value and better profit
margin.
Expecting 16% core net profit growth in FY22
Going into FY22, we expect Kawan to post 16% growth in core net profit. This will be backed by: i) higher sales, both domestic and from exports; ii) price hikes and iii) increase in production volume. The latter is based on Kawan’s ongoing efforts to secure more workers as it aims to increase its workforce by 95.6-117% by end-1Q22 to increase its permanent workforce to 450-500 from 230 workers currently.
Maintain Add call with a lower TP of RM2.50
We cut our FY22-23F EPS to account for higher input costs and introduce FY24F EPS estimates. We keep our Add call with lower TP of RM2.50 (20x CY23 P/E, in line with current 5-year historical mean). We continue to like Kawan, in view of: i) undemanding valuations (trading at 13.1x CY23F P/E, vs. overall consumer sector’s average CY23F P/E of 41.4x), ii) robust 3-year (FY21-24F) EPS CAGR of 17% and iii) strong balance sheet (net cash of RM21m as at end-4Q21).