• Company profile. CCK is involved in (a) poultry (capable of processing approximately 4,000 birds per hour, with the capacity to process 20,000 to 25,000 birds per day), (b) seafood (aquaculture farms covering 200 acres and there are approximately 45 ponds in operation - prawn aquaculture and prawn processing, where most of the seafood are for export markets to Australia, Hong Kong, Japan, Dubai and Indonesia) and (c) trading and transportation businesses. Besides, the group has wholesale and retail stores, trading departments and factories throughout Sarawak, Sabah and Peninsular Malaysia.
   
• Better quarterly results ahead amid festive season – CCK has a commendable full year results recently; revenue for FY16 grew 4.8% to RM533.7m, while the net profit increased 28.2% to 20.0m (translating to EPS of 5.83 sen). Hence, we expect that the festive season in February may see a surge in poultry and seafood volumes, potentially boosting its 1Q17 results, which will be releasing in May.
   
• Undemanding valuations and healthy dividend policy. Currently, CCK is trading at a discount of 7.4% to its book value of RM0.74 and 55% below its peers P/E average of 17x. Also, CCK has been a good dividend paymaster over the past 10 years. Hence, we may expect the group may reward the shareholder with a 1.5 sen dividend in the next financial year.
   
• Technical outlook. To recap, the trend on CCK is still stable on an uptrend bias position after our trading note last month. Given the sideways consolidation between the RM0.62-0.70 levels over the past five months with healthy volumes, we believe CCK is ripe for a breakout. Also, the MACD Indicator has turned positive over the past two trading days. As the price surged above RM0.67 yesterday, we could anticipate follow-through buying interest to pick up above the major hurdle of RM0.70. Target price will be envisaged around RM0.73-0.78, followed by the LT target of RM0.80. Support will be set around RM0.64-0.655. Cut loss will be at RM0.60.

Source: Hong Leong Investment Bank Research - 19 Apr 2017