Period 1Q12
Actual vs. Expectations
The 1Q12 net profit of RM2.1m came in below our expectations,
making up just 16% of our FY12E net profit of RM12.8m.
The lower earnings surprise was largely attributed to lower
sales registered from the North America and Europe regions.
Dividends An interim dividend of 2.4 sen (gross) was
declared in early May.
Key Result Highlights
YoY, the 1Q12 revenue decreased 8.9% on the back of lower
sales registered from the North America (-29% YoY) and Europe (-16% YoY)
regions. Revenue for the quarter trailed our estimates and accounted for 24% of
our FY12E estimate of RM98m.
YoY, the earnings (-30%) were bogged down by higher
advertisement and promotion expenses from the Malaysian market, where there was
just a meagre 3% rise in revenue from the domestic segment.
On a QoQ basis, the PBT declined by 55% to RM2.7m
predominantly due to the high benchmark set in 4Q11 as well as lower sales and
unfavourable MYR/USD exchange rate in 1Q12, which caused a dent in the group’s
export sales and margins.
Outlook The outlook for Kawan Food is likely to remain
uncertain due to wild swings in the foreign exchange rate as well as renewed
concerns on the European debt crisis.
Going into 2Q12, the group is likely to have a more favourable
USD/MYR rate, having risen to RM3.16 at the time of writing. On a medium term
horizon however, our in-house estimate continues to have a downward bias view
of the USD, which could dampen Kawan Food’s future revenue and NP.
Change to Forecasts
No changes to our FY12-13E revenue and NP as we expect the
group’s revenue and advertising expenses to normalise going into the remainder
of the year.
Rating MAINTAIN UNDERPERFORM
We are maintaining our Underperform rating on Kawan Food in
light of the potential headwinds highlighted
above.
Valuation Maintaining our TP for the stock at RM 0.86
based on a 5-year average PER of 8.9x over its FY12 Diluted EPS of 9.7 sen. Risks Volatility in the currency markets.
Source: Kenanga
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