CCK Consolidated Holdings Berhad - Below expectations
Thu, 29-May-2025 06:46 am
by Chelsea Chew • Apex Research

Counter

CCK (7035)

Target Price (RM)

1.260

Recommendation

Hold

  • CCK reported a 1QFY25 core net profit (CNP) of RM16.8m (-20.4% yoy, -15.4% qoq), missing our expectations but in-line with market’s expectation, accounting to 19.3% of our full-year forecasts and 21.7% of consensus estimates. Key deviation from our forecast was due to weaker-than-expected margins in the Retail segment. 

  • CCK is expected to face significant headwinds from impending RON95 subsidy removal and a broader economic slowdown.

  • After reducing the sales and margin expectations for the Retail segment to reflect the strategic pricing adjustments, we trim our FY25F/FY26F/FY27F earnings forecasts by 18.9%/17.0%/0.2% respectively.

  • Post earnings revision, we downgrade CCK to HOLD (from BUY) with a lower TP of RM1.26 (from RM1.79), pegged to 10.5x PE multiple on FY26F EPS of 12.0 sen, and ascribed with three-star ESG rating.

 

Missed expectations. Excluding fair value gain in short-term investments (-RM0.6m), fair value changes in biological assets (-RM0.3m) and others (+RM0.2m), CCK reported a 1QFY25 core net profit (CNP) of RM16.8m (-20.4% yoy, -15.4% qoq). This result missed our expectations, achieving 19.3% of our full-year forecast but came in line with the consensus expectations at 21.7% of consensus estimates. The key deviation from our forecast was due to weaker-than-expected margins in Retail segment, driven by strategic pricing adjustments aimed at enhancing competitiveness. During this quarter, CCK expanded the retail network with another touchpoint in Bintulu, bringing the total to 78 touchpoints (Figure 1).

 

YoY. 1QFY25's CNP fell by 20.4% yoy to RM16.8m, primarily due lower contributions from Food Service and retail segment, Operating profit for the Retail segment dropped 10.6% yoy despite a 3.3% increase in segmental revenue, as cost escalation from minimum wage hike effective Feb 2025 and strategic pricing adjustments aimed at enhancing competitiveness outweighed the benefits of better product mix. These declines more than offset the operating profit improvements in Poultry (+3.5% yoy) and Prawn (+5.7% yoy) segments.

 

QoQ. CNP declined by 15.4% qoq, lower contributions from Retail, Poultry, and Food Service segments. Retail segment’s operating profit plunged 28.7% qoq despite a flat segmental revenue, likely due to strategic pricing adjustments and minimum wage hike mentioned above. Meanwhile, Poultry segment’s operating profit dipped 29.1% qoq, on the back of moderation in demand for poultry products. The prawn segment, however, showed a significant improvement in operating profit, more than tripling qoq, supported by greater sales volume to key export markets (Japan and Hong Kong).

 

Outlook. Malaysia Government is phasing out egg subsidies, with half of the payment reduced on 1 May 2025, and a full removal from 1 Aug 2025 onwards. We think that this development is neutral for CCK as the Group can easily pass on the cost increases to consumers due to its predominantly downstream customer-facing operations. Moreover, CCK is expanding its plant in Central Jaya to triple its capacity ~60,000 MT/year. The plant is expected to break even at 30-40% utilisation rate, with a significant contribution expected from FY27 onwards.

 

Looking ahead, we anticipate a challenging outlook for CCK. Key headwinds include the potential removal of RON95 blanket subsidy, an expected economic slowdown due to tariff and trade uncertainties, and a decline in Sarawak's Oil & Gas activities following the Petronas-Petros dispute, which may lead to slower economic growth in the state. These challenges, could dampen household spending in Sarawak, ultimately reducing sales generation for CCK.

 

Earnings Revision. After reducing the sales and margin expectations for the Retail segment to reflect the strategic pricing adjustments, we trim our FY25/FY26/FY27 earnings forecasts by -18.9%/17.0%/-0.2% respectively.

 

Valuation. Post earnings revision, we downgrade CCK to HOLD (from BUY) with a lower TP of RM1.26 (from RM1.79), pegged to 10.5x PE multiple on FY26F EPS of 12.0 sen. This valuation incorporates a 0% ESG factored premium/discount based on its three-star ESG rating. We have reduced our PE multiple from 12.4x to 10.5x (15% premium to its 5-year historical mean) to account for a slowdown in earnings growth, as the Group has slowed the pace of new store openings in recent years.

 

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 4.212042 4.248408
EUR 4.921000 4.929487
CNY 0.591903 0.592919
HKD 0.540309 0.544492
SGD 3.268153 3.293573