Overall, results were largely within our expectations. PAD outperformed, while CCK reported results that came in below expectations and KOPI met our expectations.
We anticipate flattish qoq earnings in the upcoming quarter, reflecting on the absence of festivities and challenging headwinds.
This challenging outlook is primarily driven by ongoing global uncertainties, reduced consumer spending (due to anticipated RON95 subsidy removal and higher electricity tariffs), and dampened regional economic activity (i.e. the slowdown in Sarawak's oil and gas sector).
Maintain a NEUTRAL stance on the Consumer sector with a BUY rating on PAD (TP: RM2.37), and HOLD ratings for both CCK (TP: RM1.26) and KOPI (TP: RM0.81).
Review. Consumer sector delivered mixed results for 1QCY25, PAD exceeded our earnings forecasts, meanwhile KOPI came in within expectations and CCK was below our expectation. PAD’s outperformance was primarily driven by stronger-than-expected sales during two festivities and improvements in GP margin. In contrast, CCK underperformed due to weaker-than-expected margins in Retail segment, driven by pricing adjustments aimed at enhancing competitiveness.
In 1QCY25, overall core net profit (CNP) shows a healthy growth of 12% qoq. PAD posted remarkable earnings growth, driven by higher sales from two festivities during the same quarter and significant margin expansion from an improved product mix. Meanwhile, KOPI continued to deliver strong earnings, driven by its Packaged Food segment and a tripling of interest income. Although overall earnings were flat, sales still grew commendably, especially considering Ramadan fell within the period. In contrast, CCK reported weaker results, primarily due to decreased contributions from its Retail, Poultry, and Food Service segments. The retail segment's operating profit notably dropped due to pricing adjustments and minimum wage hikes. Conversely, CCK's Prawn segment soared, boosted by increased sales to Japan and Hong Kong.
On a yoy basis, the sector recorded a substantial improvement with a 56% yoy jump. The improvement was mainly attributed to improved earnings in PAD, supported by stronger sales on two major festivities and better product mix which further expand on the margins.
Outlook. We expect all companies under our coverage to report flattish qoq or seasonally weaker sales in the coming quarter. KOPI is expected to deliver flattish to marginal Café segment growth due to new store costs, while Packaged Food will drive earnings via more FMCG product offerings. Meanwhile, the next quarter is likely PAD's seasonally weaker period due to a absence of major festivities. Despite potential economic slowdowns from trade uncertainties and reduced consumer spending (due to anticipated RON95 subsidy removal and higher electricity tariffs), we believe PAD is well-positioned to weather these challenges. The Group's competitively priced products offer strong value, potentially benefiting from consumers seeking more affordable alternatives.
Likewise, we expect CCK to face similar headwinds as PAD, in addition to another challenge: reduced Sarawak oil and gas activities following the Petronas-Petros dispute. These factors could dampen household spending in Sarawak, thereby reducing CCK's sales.
Valuation & Recommendation. Under the 1QCy25 earnings season, we upgraded our recommendation on PAD from HOLD to BUY with a higher TP of RM2.37 (from RM1.78). Meanwhile, we revised lower TP on CCK to RM1.26 (from RM1.79) and maintain KOPI TP at RM0.81. We retain our NEUTRAL stance on the sector, reflecting several headwinds and cautious consumer spending.
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Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.210973 | 4.249411 |
EUR | 4.954495 | 4.965490 |
CNY | 0.589445 | 0.590817 |
HKD | 0.536642 | 0.541158 |
SGD | 3.306006 | 3.333319 |