CCK Consolidated Holdings Berhad - Weaker-Than-Expected FY24 due to higher OPEX
Wed, 26-Feb-2025 07:28 am
by Chelsea Chew • Apex Research

Counter

CCK (7035)

Target Price (RM)

1.790

Recommendation

Buy

Summary

  • CCK’s 4QFY24 core net profit fell -37.0% yoy and -14.5% qoq to RM19.9m, bringing FY24 core net profit to RM84.1m (+1.6% yoy), which missed expectations, accounted to 86.1% of our expectations, but came within (97.2%) of consensus expectations. Key deviation is due to higher-than-expected OPEX from the commencement of two new outlets.

  • Earnings growth will be supported by (i) cautious Sabah expansion in the near term; (ii) chicken feed cost (corn) downtrend projection by the USDA. 

  • After incorporating FY24 results, we adjust our FY25 and FY26 earnings forecasts by -1.2%/ +3.1% respectively.

  • Upgrade to BUY recommendation with a slight lower TP of RM1.79, pegged to 12.4x PE multiple on FY26F EPS of 1.44sen, ascribed with three-star ESG rating.

 

Missed expectations. CCK’s FY24 core net profit (CNP) of RM84.1m came in below expectations, achieving 86.1% of ours but aligning with the consensus full-year forecast of 97.2%. Key deviation is due to the higher-than-expected OPEX mainly on administrative expenses, with a 41.1% yoy increase and 54.8% qoq increase due to the commencement of two new outlets.

 

YoY. Excluding extraordinary items such as the withholding tax (repatriate tax) from the acquisition done in PT Adilmart (RM10.1m) and allowance for impairment losses on receivables (RM0.3m) and FV gain on investment securities (RM0.02m), 4QFY24 CNP fell 37.0% yoy to RM19.9m, due to the absence of RM16.0m chicken subsidies which removed in Nov 2023, compared to RM31.6m in the same quarter last year. Revenue rose 4.6% yoy to RM267.4m, mainly supported by the retail segment due to matured contributions from CCK’s established retail network.

 

YTD. On a full-year basis, CCK registered CNP of RM84.1m, showing an improvement of 1.6% yoy from CNP of RM81.4m in FY23. The thinner growth is due to the absence of RM16.0m of chicken subsidies, despite the Group revenue grew by 6.5% yoy, thanks to better retail sales (+7.2% yoy) and poultry segment (+12.9% yoy).

 

QoQ. CNP declined -14.5% qoq, due to higher tax recognised in this quarter. The withholding tax of RM10.1m recognised in this quarter is due the deals completed in PT Adilmart with Creador on the repatriation profits. Initially the repatriation tax was 20.0% as PT Adilmart is part of CCK’s subsidiaries the withholding tax able to reduce from RM32.6m to RM 10.1m. Segmental revenue wise, retail is the only positive segment, supported by strong sales and demand from both its retail network and Indonesian manufacturing operations. 

 

Outlook. In this quarter, CCK opened two additional stores in Beaufort, Sabah and another Kanowit, Sarawak (Refer to Table 1). Over the near term, CCK will actively seek locations to open new stores in Sabah, which deemed as an untapped market for CCK. As of Jul 2024, Sabah's population is about 3.7m, while Sarawak's population is about 2.9m, implying potential further penetration into East Malaysia market. The outlook for feed cost (corn) price is projected to be higher in 2025, with the US Department of Agriculture's (USDA) projection of $4.35/bushel (vs 2024's average price of $4.19 per bushel).

 

Earnings Revision. After incorporating FY24 results, we adjust our FY25 and FY26 earnings forecasts by -1.2%/+2.7% respectively. We also introduce FY27 earnings forecast of RM95.8m.

 

Valuation. After the sell-off reaction in CCK, mainly due to PT Adilmart’s acquisition, we upgraded CCK to BUY (from HOLD) at a slightly lower TP of RM1.79 (from RM1.80) after some housekeeping was made. It is pegged to an unchanged 12.4x PE multiple (-25.0% discount from the poultry peers) on FY26F EPS of 1.44 sen and ascribed with a 0% ESG factored premium/discount based on a three-star ESG rating.

 

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. 

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