CCK’s 2QFY21 net profit fell by 29.2% YoY to RM5.4m, dragged by a hike in raw material cost. After adjusting for one-off items, cumulative 1HFY21 core net profit came in at RM13.5m. Results were below our and consensus estimates, accounting for 41% and 39% of our full-year forecast respectively. The discrepancy in our numbers was mainly due to the higher-than-expected feed cost prices. As such, we are adjusting our FY21-23F earnings downwards by 3- 13% to account for the higher feed cost. Nevertheless, we are still positive on CCK’s outlook, underpinned by new retail store openings and stronger contribution from its Indonesian operations. Our Outperform call on CCK is maintained, with a lower TP of RM0.70 (from RM0.77) based on a 14x PER pegged to FY22F EPS.

• 2QFY21 revenue grew by 8.4% YoY to RM166.9m due to the stronger performance from its retail segment. Retail segment revenue increased by 9.6% YoY, driven by the increase new retail outlet openings (2 CCKLocak supermarkets and 4 CCK Freshmart) as well as the stronger contribution from its new factory in Pontianak, Indonesia. In addition, the prawn segment saw its revenue jumping by 58% to RM5.4m as the group managed to secure new customers from additional exports to South Korea and Australia as well as higher sales locally.

• 2QFY21 net profit fell by 29% YoY to RM5.4m, as the poultry segment continues to record an operating loss of RM1.6m, given the increase in feed cost. Retail segment earnings declined by 14% YoY to RM7.3m, as the Group did not completely pass on the spike in raw material cost to customers. Meanwhile, earnings contribution from CCK’s associate, Gold Coin (Sarawak) SB improved by 44% to RM1.8m, which helped to partially cushion the negative impact of hike in feed cost.

• Outlook. Poultry segment outlook remains challenging given muted poultry prices and the higher feed cost. CCK plans to mitigate the spike in raw material cost by increasing its selling price on a gradual basis. The Group plans to open 4 new retail outlets (3 CCK Freshmart and 1 CCKLocal supermarket in Sibu, Sarawak), bringing its total store count to 72 by CY2021. Meanwhile, the Indonesian market remains a key growth driver given the ramp up in production in the Pontianak facility due to stronger demand for processed products.

Source: PublicInvest Research - 26 Aug 2021