CCK’s 2QFY23 core net profit jumped by 81.0% YoY to RM16.7m, largely driven by greater contribution from the retail segment and prawn segment, which was lifted by PT Bonanza’s contribution. Cumulative 1HFY23 core net profit of RM30.5m was in-line with our and consensus estimates, accounting for 53% and 49% respectively. We are still optimistic on CCK’s future prospects, as we believe that while consumer spending may be affected by inflationary pressures, demand for CCK’s products will continue to be resilient, given the defensive nature of consumer staples products. As such, we maintain our Outperform call on CCK, with an unchanged TP of RM0.98 based on 10x FY24F EPS.

• 2QFY23 revenue increased 17.7% YoY to RM247.1m. The prawn segment sales surged by 331.2% YoY, due to contribution from PT Bonanza which led to an uptick in exports and stronger domestic sales via CCK’s own retail channels. The retail segment saw its revenue grew by 11.5% YoY on higher consumer demand and new store opening. Note that CCK opened a new CCK Fresh Mart retail store, bringing its retail network to 73 (2QFY22: 72).

• 2QFY23 core net profit rose by 81.0% YoY to RM16.7m, as all operating segments reported stronger growth. Poultry segment managed to turn profitable on lower feed input costs and the subsidy scheme from the government. Retail segment saw its EBIT margin improved by 0.7 ppts to 9.1%, due to a favourable product mix. Greater production efficiency post acquisition of PT Bonanza has helped to lift the prawn segment’s EBIT margin by 8.6 ppts to 11.7% (2QFY22: 3.1%).

• Outlook. While the weaker consumer sentiment may translate to a decline in consumer spending in the Hotels, Cafes and Restaurants (Horeca) segment, we think that it will not have a huge impact on CCK’s retail segment. As we believe that the impact will be mitigated by an increase in grocery spending from consumers with consumers choosing to dine in at home given the more affordable option. Meanwhile, we foresee an improvement in margins from its poultry and prawn segment, mainly due to the easing of feed input costs and greater economies of scale from PT Bonanza respectively. All told, we remain optimistic on CCK’s future prospects.

Source: PublicInvest Research - 23 Aug 2023