Summary
CCK reported 3QFY24 core net profit of RM23.3m (18.1% qoq, +16.8% yoy) and 9MFY24 core net profit of RM64.5m (+18.8% yoy), which is in line with our expectations, but exceeded consensus expectations, accounting for 73.9%/83% respectively.
No changes in FY24F earnings. However, we raised our average revenue/outlet to 5%/3% yoy from 0% in FY25F/FY26F. We expect CCK will pass on the rising input costs, such as personnel costs (70-80% are drawing minimum wages), to customers via ASP revision.
Upgrade to BUY recommendation on CCK, with a higher target price of RM1.70 based on 12.4x pegged to FY26F EPS of 13.6 sen.
Results Review
Within expectations. CCK’s 9MFY24 core net profit (CNP) of RM64.5m accounted for 74% of our CNP forecast of RM79.4m and 83% of street forecast of FY24F CNP at RM77.5m. We deem the results to be within expectations, as CCK historically delivers seasonally stronger 4QFY24 due to festive events, year-end stocking up for Chinese New Year preparation and increased consumer spending.
QoQ. 3QFY24 CNP rose 18.1% qoq to RM23.3m but a -4.4% qoq decline in revenue to RM259.5m. The stronger bottom line was primarily driven by a better GP margin (22.7% from 22.1%). Despite this, the retail segment experienced a -4.6% qoq decline, though this improved by 3.7% from a yoy perspective. This is due to stronger sales in retail and high demand in Indonesia operations for CCK’s in-house processed products. Associate contributions from Gold Coin (Sarawak), decreased to RM1.1m (from RM1.8m in 2QFY24).
YoY. 9MFY24 CNP rose by 18.8% yoy to RM64.5m, primarily driven by (i) stronger performance in the poultry segment (+14.8% yoy) and (ii) resilient retail sales performance. This offset the decline in the prawn segment (-0.8% yoy) and food service (-15.1% yoy). As a result, the Group’s 3QFY24 CNP margin improved to 8.1% from 7.3% in 3QFY23).
Outlook. Over the near term, we expect the raw material prices to stabilise. Corn futures dropped to $4.20/bushel in late November due to abundant supplies and demand concerns. Soybean futures rose to $10/bushel, driven by strong Chinese demand and geopolitical tensions between Ukraine and Russia. China is buying up Brazilian soybeans due to attractive prices and a record crop production, reducing risks from U.S.-China trade tensions. The simultaneous occurrence of both price movements may reduce the overall degree of fluctuation or offset each other's impact.
Minimum wages impact. Of 2,500 employees, c.70–80% are at the minimum wage level. With increased personnel costs, staff expenses are expected to increase by RM4-5m per annum. We expect margins to sustain with CCK opt to raise the ASP of the product mix. We believe CCK is able to pass on these costs as it faces lesser competition in East Malaysia with various product mixes than other small fresh marts, due to its status as the largest fresh market in East Malaysia.
Earnings revision. No changes in FY24F earnings as reported results were in line with forecasts. However, we raised our average revenue/outlet to 5%/3% yoy from 0% in FY25F/FY26F. We expect CCK will pass on the rising input costs, such as personnel costs (70-80% are drawing minimum wage), to customers via ASP revision.
Valuation. Upgrade to BUY recommendation (from HOLD) with higher TP of RM1.70, This is based on a 12.4x PE multiple, which represents a 30% premium from the 5-year average historical PE pegged to FY26F EPS of 13.6 sen. We believe CCK will be able to deliver stronger retail sales results.
Risks. (i) Volatility in poultry prices and feed expenses, (ii) vulnerability to currency fluctuations due to feed costs being denominated in USD, while the company also exports a portion of its goods overseas.
Disclaimer
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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.
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Currency | Buy Rates (RM) | Sell Rates (RM) |
---|---|---|
USD | 4.390206 | 4.425718 |
EUR | 5.008717 | 5.015095 |
CNY | 0.603029 | 0.603828 |
HKD | 0.565660 | 0.569770 |
SGD | 3.345779 | 3.370205 |