KUCHING: The related party transaction (RPT) within Kawan Food Bhd (Kawan Food) is likely to generate tax savings by using Hong Kong as its base for exports. By doing this, it will help lower Kawan Food’s tax rate going forward.
Kenanga Investment Bank Bhd (Kenanga) said this in its research report yesterday, adding that the exercise is targeted at streamlining the group’s structure for a better headstart this year.
It also explained that all Kawan Food’s exports from Malaysia and China will go through Hong Kong except those destined for Southeast Asian countries.
On the effect of the RPT on Kawan Food’s net profit, Kenanga said it did not expect any significant changes from the transfer as the food manufacturing group remains the ultimate holding company of KFN.
To note, Kawan Food announced on Monday that it had completed the transfer of its wholly-owned subsidiary Kawan Food (Nantong) Co. Ltd (KFN) to another its Hong Kong unit Kawan Food (Hong Kong) Limited (KFHK) for US$6.05 million (RM20.7 million).
Upon the completion of the transfer, KFN is now a wholly-owned subsidiary of KFHK.
Meanwhile, Kenanga suggested a slight increase in target price from RM1.39 to RM1.45 based on 13 times price earnings ratio (PER) applied to this year’s revised earnings per share (EPS) of 11.1 sen. This is driven by improvements that will come from its Nantong, China factory when it is fully operational. The plant began its operational in the third quarter of last year.