CCK Consolidation Holdings Berhad - Disposal of Subsidiary in Indonesia to Creador
Tue, 17-Sep-2024 06:34 am
by Chelsea Chew • Apex Research

Counter

CCK (7035)

Target Price (RM)

1.64

Recommendation

Hold

Company Update

 

  • Retail chain divestment. CCK has signed an agreement with private equity firm, Creador Sdn Bhd’s special-purpose vehicle Astrantia Sdn Bhd to divest 40.0% stake in the Group’s Indonesia unit, PT Adilmart Tbk for RM163.1m. The proposed exercise is expected to be completed by 4Q24.

 

  • M&A details. Prior to the divestment, Adilmart will carve out and dispose its stake in PT Bonanza Pratama Abadi and PT Central Coldstorage Khatulistiwa to CCK, and settle any related part balances. Subsequently, Astrantia will acquire existing shares from CCK and subscribe to new shares, structured in three tranches as shown in Table 1. The first tranche involves acquiring 31.7k existing shares in Adilmart for a cash consideration of RM88.1m, while the second and third tranches involves share subscriptions of 21.6k shares and 5.4k shares via cash consideration of RM60.0m and RM15.0m respectively.

 

  • Post divestment structure. At present, CCK holds a direct 96.25% equity stake in Adilmart as well as indirect 3.75% equity stake via its fully owned subsidiary, CCK Fresh Mart. Post divestment, CCK will hold a direct 56.9% equity stake in Adilmart and 3.1% equity stake via CCK Fresh Mart while Astrantia will hold the remaining 40.0% as illustrated in Figure 1.

 

  • Price tag deemed fair. With Adilmart reporting net profit of RM26.6m for FY23, the acquisition P/E multiple is at 12.5x, which we believe is fair compared with Indonesian peers’ average of 12.3x. This valuation is also consistent with CCK’s trailing 12-month P/E of 12.2x.

 

  • Financial impact. We expect reduction in core net profit by -9.7%/-9.5% to RM79.4m/RM80.2m for FY25F/FY26F respectively.

 

  • Neutral on the Disposal. Overall, we are NEUTRAL on this divestment. While the divestment price is fair and could allow CCK to raise RM88.1m cash for debt repayment, fund CAPEX and cover working capital needs, the Group is already in a net cash position. We see no reason to raise more cash unless CCK is poised for a major M&A action in the future. Additionally, the corporate action will be earnings dilutive. Adilmart has already demonstrated CAGR of 38.0% for its net profit from FY21 to FY23. We do not see Creador’s partnership bringing in significant synergistic impact to Adilmart’s earnings prospect.

 

  • Valuation. Maintain HOLD recommendation with lower target price of RM1.64, based on revised FY25F EPS of 12.6 sen pegged to 13.0x P/E multiple. 

 

  • Risk. Volatility in poultry prices and feed expenses, along with vulnerability to currency fluctuations due to feed costs being denominated in USD, while the company also exports a portion of its goods overseas.

Read more details in:

Disclaimer

The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against Apex Securities Berhad. Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of Apex Securities Berhad.

Market Mover
Settlement Rates
Currency Buy Rates (RM) Sell Rates (RM)
USD 4.455268 4.488135
EUR 4.716585 4.723137
CNY 0.616518 0.616862
HKD 0.572409 0.576643
SGD 3.318330 3.343262