CCK has proposed to acquire the entire stake in Indonesia-based PT Bonanza Pratama Abadi (PT Bonanza), for USD8m (c.RM33.7m). PT Bonanza is mainly involved in processing and freezing shrimp for local and export sales. The purchase will be satisfied via internally generated funds and bank borrowings. We are positive on this acquisition as it is synergistic to CCK’s prawn segment, which should lead to an improvement in operational efficiencies and lower production cost. Based on our estimates, CCK could see an earnings uplift of 6- 8% in FY22-24F with TP increasing to RM0.75. Pending further approval on the acquisition, we are keeping our earnings estimates unchanged at this juncture. Our Outperform call and TP of RM0.70 based on a 14x PER pegged to FY22F EPS is maintained.

• Details on proposed acquisition. CCK has entered into a conditional share sale agreement with Mitsumoto Corp Ltd, Seven Star Enterprise SB, Harvest Bonanza SB and Miradewi Rosadi to purchase the entire equity interest of PT Bonanza for USD8m (c.RM33.7m). We understand that the purchase consideration will be satisfied via 50% internally generated funds and 50% bank borrowings. We estimate that CCK will have a net gearing ratio of 0.1x upon completion of the acquisition. The acquisition is pricing PT Bonanza at 8.7x PER, based on its FY20 PAT of USD0.9m (c.RM3.9m). We believe the valuation ascribed is fair as it represents a 15% discount to the average PER of 10.2x of its regional peers. The proposed acquisition is expected to be completed by 2HFY22.

• PT Bonanza financials. PT Bonanza recorded a 2-year earnings CAGR of 105% to USD0.9m (c.RM3.9m) in FY20, mainly driven by the lower raw material costs. Cumulative 9MFY21 revenue grew by 26.8% YoY to USD13.3m (c.RM56m) on the back of the higher demand for seafood products. However its 9MFY21 net profit fell by 4.2% to USD0.7m (c.RM2.9m), owing to the higher raw material costs.

• Our view. We are positive on this acquisition as we believe that it complements CCK’s existing prawn segment business, which could lead to an improvement in operational efficiencies. We expect this acquisition to be earnings accretive as based on our estimates, CCK could see an earnings uplift of 6-8% in FY22-24F.

Source: PublicInvest Research - 15 Apr 2022