CCK Consolidated Holdings Berhad - Driven by stellar retail and poultry segments
Wed, 28-Aug-2024 07:19 am
by Chelsea Chew • Apex Research

Counter

CCK (7035)

Target Price (RM)

1.82

Recommendation

Hold

Summar

CCK’s 2QFY24 core net profit stood at RM20.8m (+2.5% qoq, +24.4% yoy), bringing 1HFY24 core net profit to RM42.2m (+28.2% yoy), came in line with ours and consensus’ expectations, accounting for 48.5% and 54.0% of ours and consensus forecasts respectively.

As a result, we kept our earnings forecast unchanged.

Re-iterate HOLD recommendation on CCK with a higher target price of RM1.82 by pegging at a higher P/E multiple of 13.0x to FY25F EPS of 14.0 sen.

 

Results Review

  • Results review. 2QFY24 core net profit climbed +24.4% yoy and +2.5% qoq to RM20.8m, primarily driven by stellar performance in the retail and poultry segments, compensating for a slight downturn in the food service segment. Revenue for the quarter added +9.9% yoy and +4.2% qoq, reaching RM271.6m. Growth was largely attributed to the retail segment, which benefited from matured contributions from the established retail network and improved consumer demand.

  • Within expectations. 1HFY24 core net profit at RM42.2m (+28.2% yoy) aligned with our expectation, accounting for 48.5% of our core net profit forecast at RM87.1m and was at 54.0% of the consensus forecasted core net profit of RM82.9m.

  • Operations Highlights Malaysia's operations contributed 74% of total revenue, amounting to RM201.3m, and this trend is expected to sustain due to strong retail sales. Indonesian manufacturing saw a -2.2% yoy decline, with revenue slipping to RM48.2m. Despite this, sales volume remained robust, supported by in-house processed products. The Group's retail network stayed stable with 74 touchpoints (compared to 75 in 2QFY23), including 65 CCK Fresh Mart stores (one closed), 6 CCK wholesale stores, and 3 CCK Local Supermarkets.

  • On 20 August 2024, CCK announced that its subsidiary, CCK Fresh Mart Sdn. Bhd., signed a Sale and Purchase Agreement with Wong Hua Tiing to acquire a three-storey shophouse on Jalan Salim, Sibu, for RM1.6m. This acquisition will eliminate rental expenses, provide better control over operational space, and support CCK’s expansion strategy by enhancing its market presence and brand visibility.

  • Industry Highlights. Feed costs, marked c.3% yoy increase in soybean meal prices and c.9.3% yoy increase in maize prices in June 2024, indicate a normalised demand-supply dynamic, maintaining balance and bodes well for margins during the quarter. Meanwhile, soybean prices increased c.1.6% qoq and maize prices rose by c.8.8% qoq in June 2024 compared to the prior month. This reflects that feed costs have softened due to lower global exports and higher ending stocks of maize and soybean meal.

  • Outlook. In Indonesia, CCK’s in-house brands of sausages and nuggets have experienced significant growth, thus CCK plan to invest further to expand their capacity. Also, CCK remains committed to expanding its retail network and improving efficiencies to meet consumer demands and maintain market competitiveness.

  • Valuation. Following the recent surge in share price (+23% YTD), we maintain our recommendation at HOLD with a revised target price of RM1.82, by pegging at a higher P/E multiple of 13.0x to FY25F EPS of 14.0 sen. The higher P/E multiple reflects the improved outlook of the Indonesia venture and the resilient retail and poultry segments for CCK; thus, we apply a 3% premium to its historical P/E multiple.

  • Risk. Key components of feed costs and export services remain vulnerable to currency fluctuations due to feed costs and trading in currencies denominated in US Dollars.

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