CCK’s 1QFY23 net profit surged by 45.2% YoY to RM16.2m, due to higher sales from its retail segment on strong consumer demand and better contribution from  its prawn segment, thanks to the recently acquired PT Bonanza. After stripping out non-core items, CCK’s 1QFY23 core net profit came in at RM13.8m. Results was in-line with our and consensus estimates, accounting for 25% and 24%  respectively. We tweak our earnings forecast for CCK by an average of 2%, on bookkeeping changes. We are still optimistic on CCK’s future outlook, mainly premised on higher contribution from PT Bonanza and resilient demand for its consumer staple products amidst high inflationary pressure. Our Outperform call on CCK is maintained, with a higher TP of RM0.98 (previously RM0.90) based on  10x FY24F EPS.

• 1QFY23 revenue increased 21.9% YoY to RM240.6m. Retail segment saw its top-line grew by 11% YoY on stronger consumer demand and new store opening (CCK Fresh Mart). Meanwhile, the prawn segment continues to post  a strong growth of 500% YoY, thanks to the contribution from PT Bonanza.  Food service segment revenue surged by 51%, on the back of an increase in  activities from government schools.

• 1QFY23 core net profit rose by 34.7% YoY to RM13.8m, mainly lifted by  the stronger performance from the retail segment given the favourable product  mix. This had led to a 2.6 ppts increase in retail segments EBIT margin. Prawn segment EBIT surged >100%, in tandem with PT Bonanza’s contribution and  better economies of scale post-acquisition. However, the poultry segment  recorded an 86% YoY decline, dragged by the fluctuations in feed costs, price  ceilings for poultry products and the absence of subsidies.

• Outlook. While the rising interest rate environment might lead to weaker  consumer consumption which could affect Hotels, Cafes and Restaurants  (Horeca) sales, we think that it will unlikely have a huge impact on CCK’s retail  sales. This is mainly due to the resilient nature of its retail business which focuses more on consumer staple products. We foresee an improvement in  margins from its prawn and retail segment, mainly underpinned by the better economies of scale post acquisition of PT Bonanza and its in-house  manufactured processed products. That being said, we expect a 9.5% YoY  growth in CCK’s FY23F net profit and hence, remain optimistic on it’s future  prospects.

Source: PublicInvest Research - 30 May 2023