Malaysia’s halal-certified Kawan Food second quarter revenue up on China, regional exports

Malaysia’s Kawan Food saw its second quarter revenue grow 9.2 per cent on rising demand in China and the rest of Asia but higher depreciation charges pushed down net profit.

The halal-certified frozen food manufacturer’s revenue for the three months ending June 30 was 57.21 million ringgit ($13.61 million) from 52.39 million ringgit for the corresponding period in 2018, it reported in a bourse filing on Tuesday.

Profit after tax plunged 54.8 per cent from 6 million ringgit in Q2 last year to 2.7 million ringgit for the same period in 2019.

“The decrease was principally due to higher depreciation charged (increased by 2.7 million ringgit) for the automation of manufacturing process and capacity expansion,” said Kawan Food.

EXPORTS UP

The maker of frozen flatbreads and pastries reported Malaysia as its biggest market, contributing 44.35 per cent to sales in the second quarter, up 4 per cent from Q2 last year.

North America is Kawan’s biggest export market. The region saw a 7.1 per cent increase in sales there to 12.41 million ringgit.

This was followed by ‘Rest of Asia’ that enjoyed 20.6 per cent more in exports from Kawan to 7.85 million ringgit.

Sales to Europe, Kawan’s third biggest export region, surged 18.6 per cent to 4.8 million ringgit.

However, it is the lucrative China market that Kawan highlighted in its review.

CHINA GROWING TASTE FOR ‘WESTERN STYLE CONVENIENCE’

China was Kawan’s fourth biggest export market, with sales to the People’s Republic rising 19.6 per cent to 3.61 million ringgit for the three months ending June 30.

For the six-month period, sales to China increased the most, by 38.4 per cent to 7.2 million ringgit from 5.2 million ringgit in the same period in 2018, said Kawan.  

The company attributes this to “the growing demand of western style convenience food (tortilla).”

Overall, the Group’s revenue for the first six months of 2019 was 107.5 million ringgit, an increase of 9 per cent from the corresponding period last year.

However, net profit plunged 57.2 per cent from 10.1 million ringgit to 4.3 million ringgit for H1 2019, mainly due to higher depreciation charges.

OUTLOOK

The company said it “remains optimistic” on its long-term prospects, citing progress on its expansion with a new plant to boost capacity that it said will help it meet demand growth.

“However, Kawan believes that the new capacity available will gradually be taken up by the growing sales demand in the domestic and export market,” said the company.

The manufacturer addressed the higher depreciation charges that put pressure on its margins.

“Overall, the global demand for our products including the domestic market remains in expansionary mode. As such, the improving demand can help in reducing the impact of fixed production cost such as depreciation.”

($1 = 4.2045 Malaysian ringgit)

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