Will Keytone Dairy Corporation drive efficiencies within the business and further improve gross margins?

Team Veye | 26 Mar 2020 ASX - KTD
Will Keytone Dairy Corporation drive efficiencies within the business and further improve gross margins?

Keytone Dairy Corporation Limited (ASX: KTD)

COVID-19 Update and second manufacturing plant in NZ Operational

Keytone Dairy Corporation Limited (ASX: KTD or KTD.AU) (the “Company” or “Keytone”) on 25 March 2020 announced the first commercial production run at the Company’s newly built second manufacturing plant in New Zealand, as well as an update on the impact of, and opportunities presented by, the outbreak of COVID-19.

  • Second manufacturing facility in New Zealand completes first commercial production run 
  • New Zealand production capacity more than triples on a one shift basis 
  • Significant increase in inbound demand for proprietary products as a result of COVD-19
  • KeyDairy formulated milk powders experiencing an increase in demand of four times greater than that prior to COVID-19 
  • Increase in orders and inbound enquiries from private label clients for food staples as a result of COVID-19 
  • Ketyone Dairy manufacturing sites, in Australia and New Zealand, considered essential food production service, and will continue operations through lockdown periods

 

(Chart source: TradingView)

Coronavirus Update and Further Walmart Order

Keytone Dairy Corporation Limited on 26 February 2020 provided an update on the impact of, and opportunities presented by, the recent outbreak of Coronavirus and details of a further order received from Walmart ahead of schedule.

  • Coronavirus anticipated to have an immaterial impact on Keytone business 
  • Chinese consumption of staple food products, including dairy, is reported to have increased substantially due to the Coronavirus crisis, including those sourced from New Zealand and Australian dairy 
  • Keytone’s product development team is prioritising the development of immunity-style nutritional products to meet in-bound demand from the Chinese market 
  • Further order received from Walmart China ahead of schedule (Data Source – Company Reports)

 

Veye’s Take

Keytone is experiencing a significant increase in inbound demand for its proprietary products and those manufactured for third party clients. This increase in demand is being recorded across all operations of the business in Australia and New Zealand and is being driven from international and domestic markets. The Company’s proprietary KeyDairy formulated powdered dairy products have experienced an increase in demand approximately four times greater than that prior to the outbreak of COVID-19. Keytone’s second manufacturing facility is now online to service this additional demand. The Company is also fast tracking the roll-out of an online platform for the direct purchase of its milk powders. The additional capacity from the second manufacturing facility will more than triple Keytone Dairy’s total name plate product manufacturing capacity in New Zealand on a one shift basis and will be implemented immediately given the increased level of demand from that earlier anticipated, given the current outbreak of COVID-19. The Company expects to scale up production to multiple shifts over the short to medium term. Keytone expects that following the containment of COVID-19, there will likely be a structural shift in the consumption patterns of consumers globally with an increased focus on health and wellbeing, which the Company is ideally placed to service. The stock’s MACD is having positive divergence. It can have the potential to move up substantially if it is able to cross $0.34 with volumes. Veye maintains a “Buy” on “Keytone Dairy Corporation Limited” at the current price of $0.31

 

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