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KENANGA RESEARCH Results Note

PP7004/02/2011(029201)

01 March 2011

Stock data

Market cap (RMm): 162.0

Issued shares (m): 120.0

52-week range: RM1.00-RM1.67

3-mth avg daily volume: 39,203 shrs

Bloomberg code: KFB MK

YTD price chg: -6.9%

YTD KLCI chg: -1.8%

Est. free float: 25.9%

Major shareholders:

Gan Thiam Chai: 33.3%

Goshenite Ltd: 24.0%

Gan Thiam Hock: 8.4%

Kwan Sok Kay:LTAT:

8.4%5.1%

KLCI FBM70 FBM100 KLCI FBM70

No No No No No

Consensus

FYE 31 Dec 2011E 2012E

Net profit (RMm): n.a. n.a.

EPS (sen): n.a. n.a.

Forecast revision

FYE 31 Dec 2011E 2012E

Prev. net profit (RMm): 17.7 20.7

Revision (%): -15% -23%

Net profit (RMm): 15.1 16.0

Share price chart

The Research Team Tel: 603-2713 2292

research@kenanga.com.my

Kawan Foods FY10 revenue grew 5.2% to RM92.2m whi le core netprofit increased 11.3% to RM13.8m, bringing in slightly below ourestimates by 7.3%. 4QFY10 revenue fell 10.3% due to lower salesfrom Malaysia, rest of Asia, Europe and Oceania, but core netprofit increased 20%. We are lowering our FY11 earnings forecastby 15% to RM15.1m, which decreases our TP to RM1.51 fromRM1.77 (based on 12x FY11 EPS).

Slightly below expectation. FY10 revenue grew 5.2% to RM92.2mwhile profit increased 11.3% to RM13.8m, bringing in slightly belowour estimates. Full year revenue improved by 5.2% supported bystrong sales growth in the domestic market at 11.3%, North Americaat 7.4% and Asia ex-Malaysia at 2.4%. However, European andOceania market registered contraction of 9.0% and 1.6%respectively.

QoQ revenue was lower by 10.3% but core net profit was up by20%. QoQ EBIT margin is lower at 16% compared with 24% in theprevious quarter, mainly resulted from lower sales volume, whichcaused by poorer economic of scale.

Lower earnings estimate for FY11 and FY12. Given the lowerEBIT margin in 4QFY10 and lower growth rate of revenue comparedwith the past, we lower our earnings projections by 15-23% over

FY11E and FY12E to RM15.1m and RM16m to factor in weakerthan earlier expected volume assumptions.

Target price revised downwards to RM1.51, applying a 5-yearsector average PE band of 12x PER to its FY11 EPS of 12.6 sen.We continue to maintain our BUY recommendation on KFB.

Kawan FoodSlightly Below Estimates

BUY

RM1.35Target Price: RM1.51

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Kawan Food 01 March 2011 Page 2 of 2

Segmental Breakdown

FYE: 31 Dec (RMm) 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 QoQ Chg YoY Chg

Segmented Revenue

M'sia 9.7 9.3 7.6 11.3 10.2 -9.1% 5.2%

Asia (excl. M'sia) 2.2 2.5 3.8 3.8 2.7 -30.6% 19.1%

Europe 1.4 3.1 3.4 2.8 0.9 -66.1% -35.5%

North America 5.8 7.0 6.6 4.7 6.3 35.0% 8.4%

Oceania 1.1 1.3 1.6 1.8 1.6 -9.8% 45.9%

Africa 0.0 - - - - n.a. n.a.

Group Revenue 20.3 23.2 22.9 24.3 21.8 -10.5% 6.9%

Earnings Estimates

FY 31 Dec (RMm) 2009 2010 2011E 2012E 2013E

Revenue 87.6 92.2 98.0 104.1 110.6

EBIT 17.1 18.2 20.0 21.1 22.3

Pretax profit 17.7 17.6 19.4 20.5 21.7

Core net prof it 12.4 13.8 15.1 16.0 16.9Core EPS (sen) 11.3 11.5 12.6 13.3 14.1

Core EPS growth (%) 43.1% 1.8% 9.5% 5.9% 5.8%

DPS (sen) 3.0 3.0 3.5 4.0 4.5

NTA/ share (RM) 0.69 0.78 0.87 0.96 1.06

Net gearing (x) net cash net cash net cash net cash net cash

PER (x) 10.3 11.5 12.6 13.3 14.1

P/ NTA (x) 2.0 1.7 1.6 1.4 1.3

Div. yield (%) 2.2% 2.2% 2.6% 3.0% 3.3%

EV/ EBITDA 7.3 6.0 5.6 4.6 3.7

ROE (%) 17.5% 15.6% 15.3% 14.5% 13.9%

This document has been prepared for general circulation based on information obtained from sources believed to be reliable but we do notmake any representations as to its accuracy or completeness. Any recommendation contained in this document does not have regard to thespecific investment objectives, financial situation and the particular needs of any specific person who may read this document. Thisdocument is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees.Kenanga Investment Bank Berhad accepts no liability whatsoever for any direct or consequential loss arising from any use of this documentor any solicitations of an offer to buy or sell any securities. Kenanga Investment Bank Berhad and its associates, their directors, and/oremployees may have positions in, and may effect transactions in securities mentioned herein from time to time in the open market orotherwise, and may receive brokerage fees or act as principal or agent in dealings with respect to these companies.

Published and printed by:

KENANGA INVESTMENT BANK BERHAD (15678-H)8th Floor, Kenanga International, Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Chan Ken YewTelephone: (603) 2166 6822 Facsimile: (603) 2166 6823 Website: www.kenangaresearch.com Associate Director

Results Highlights

FY 31 Dec (RMm) 4QFY09 1QFY10 2QFY10 3QFY10 4QFY10 QoQ Chg YoY Chg

Revenue 20.3 23.2 22.9 24.3 21.8 -10.5% 6.9%

EBIT 4.5 4.6 4.3 5.8 3.4 -41.1% -23.5%

Finance costs (0.1) (0.1) (0.1) (0.2) (0.1) -10.0% 34.3%

Pretax prof it 4.4 4.5 4.2 5.7 3.3 -42.0% -24.9%

Taxation (0.1) (1.3) (0.9) (1.9) 0.3 -115.6% -355.2%

Net prof it 4.2 3.2 3.3 3.8 3.6 -5.0% -15.5%

Basic EPS (sen) 3.5 2.7 2.7 3.1 3.0 -5.0% -15.5%

DPS (sen) - 1.4 - - - n.a. n.a.

NTA/ share (RM) 0.69 0.70 0.72 0.75 0.78 4.1% 12.6%

Net gearing (x) nm nm nm nm nm n.a. n.a.

EBIT margin 22.0% 19.9% 18.8% 23.9% 15.7% -34.2% -28.5%

Pretax margin 21.5% 19.3% 18.1% 23.3% 15.1% -35.2% -29.8%

Net margin 20.8% 13.8% 14.2% 15.5% 16.4% 6.2% -21.0%

Effective tax rate 2.6% 28.4% 21.6% 33.5% -9.0% -126.9% -439.8%