Moving forward, the normalising of steel prices in recent months should bode well for the general construction industry. Still, the elevated concrete price that rose 2.6% MoM in January 2023 will keep margins recovery in check. Hence, we expect ECONBHD may return to the black only towards end-2023.

Intensified selling pressure dragged the FBM KLCI into the negative territory yesterday, taking cues from the regional losses. While the Wall Street staged a rebound overnight signalled the emergence of the positive sentiment, volatility might not abate over the near term without slowing down the interest rate upcycle. Back home, the re-tabling of Malaysia Budget 2023 will be taking the centre stage and investors may also keep an eye on Malaysia’s inflation rate today.

The FBM KLCI retreated from a rebound-attempt yesterday, taking cue from the bearish regional markets following the negative performance on Wall Street. As broad-based selldown persisted on Wall Street, investors may remain cautious while eyeing the inflation data for more clues on the interest rate directions going forward. On the local front, all eyes shall be on the re-tabling of Budget 2023 tomorrow as well as Malaysia’s inflation rate.

Moving forward, we think that the price of Grade C chicken egg will linger around RM0.35. Do note that the ceiling prices are expected to be uplifted after June. An update report will be issued upon upliftment. In the shorter term, operating environment remains challenging in view of the elevated feed cost, as the egg price has been under ceiling price control since November 2022.

Kawan Food Bhd (KAWAN) is regarded as one of Malaysia’s leading exporters and largest manufacturer of frozen Asian food delicacies worldwide, under the brands Kawan, KG Pastry, Passion Bake, Veat and Aman. The group operates 3 factories, of which products are exported to 37 countries globally that are sold in local groceries and supermarkets.

We reckon that net margins may stay in mid-to high teens in 1HFY23 before potentially improving towards slightly above 20.0% in 2HFY23 after the issue of defective products received from its FDA approved supplier resolves. While there were several rounds of selling price revisions last year, we reckon that margins recovery will be challenging due to the elevated copper prices that traded above USD8,000/MT year-to-date vs. USD5,000 6,500/MT level during pre-pandemic.

YoY, core net profit fell 16.6% YoY to RM3.7m, primarily resulted from (i) lower contribution from OEM segment that outweighed the slight increase contribution from House Brand segment, (ii) increase in administrative expenses resulting from annual bonus provisions and employee benefit expenses for share options, and (iii) increase in amortisation of research and development cost as a result of new products launched.

The FBM KLCI ended marginally higher as the key index reversed earlier rally into the afternoon session amidst mixed regional market. Following the heavy plunge on Wall Street overnight, we believe investors may stay on the sidelines as concerns over the interest rate hikes expectation continues to pressure the market sentiment. Nevertheless, the US FOMC meeting minutes will remain in focus and should provide more clues going forward.