• A reputable integrated poultry player in Sarawak. CCK (listed in Dec 1997), is mainly involved in poultry and seafood (in prawn agriculture and prawn processing, largely for export markets to Australia, Hong Kong, Japan, Dubai, Vietnam and Indonesia), trading and transportation businesses. The group has over 60 wholesale and retail stores, trading departments as well as factories throughout Sarawak, Sabah and Peninsular Malaysia. In the past few years, the group has also expanded its presence regionally with the setting up of retail outlets for cold storage products in Indonesia. Overall, CCK continues to upgrade its production capacities and increase its product range in quest to become one of the largest integrated poultry producers in the region, as fixed assets increased 121% from RM100m as at end 2012 to RM221m end 2016.

• Synergy from the JV with Gold Coin Sarawak (GCS), one of the leading animal feed players. Following the completion of a 27.2% JV stake in GCS in 3Q16, CCK is cautiously optimsitic of a better FY17, reaping on the synergy (net profit margins improved from 4.4% in FY15 to 5.8% in FY16 with GCS only contributed starting in 3Q16) from GCS as well as securing long-term supply of quality feeds, given that animal feed is key cost component for a poultry business). With the addition of GCS, CCK's businesses now have vertically expanded into 4 segments namely, Poultry, Aquaculture for Export, Retail Consumer Frozen Food and Animal Feed. The JV stake will pave way for CCK to venture into the feed mill business (i.e. covering feeds manufacturing, farming and processing to distribution and retailing) via a reputable partner cum profitable operator with established brand name, market position, client base and extensive technical knowledge.

• Cautiously optimsitic of a better FY17. In its 4Q16 results review, Managment is optimistic of a better FY17, riding on the resilient demand in the retail and poultry segments with the prawn sector continued to show commendable results, as well as the positive contribution from the recently acquired associated company, GSC. Based on its commendable dividend track record and higher profits in FY16, CCK is likely to maintain a 1.5 sen dividend, despite already rewarding shareholders with a 1:1 bonus issue (ex-date 28 June).

• Long term uptrend intact. At RM0.64, CCK is trading at 0.86x P/BV (33% below its peers’ P/BV of 1.29x). Technically, its long term uptrend channel remains intact and we believe the stock is ripe for a near term downtrend resistance breakout, as indicators are on the mend.

• A decisive breakout above downtrend line near RM0.645 may spur share prices higher towards RM0.66 (50-d SMA) and RM0.70 (7 Feb high) before testing our LT objective at RM0.74 (latest BVPS and upper channel). On the flip side, key supports are situated at RM0.62 (23 Feb low) and RM0.60 (psychological level). Cut loss at RM0.59.

Source: Hong Leong Investment Bank Research - 10 Mar 2017