HLBank Research Highlights
CCK Consolidated Holdings - Safe to put your eggs in this basket
We opine that the market has overlooked CCK’s key advantages such as:- (i) itswide distribution network of 59 self-owned retail outlets and supermarkets(planning to open in Kuching and KK by 2020), leading to consistent superior margins (142% above industry peers’ average), (ii) captive market in East Malaysia and Indonesia (contributed 16.3% of total revenue in 9M19 vs. 5.7% in 9M18), (iii) good defensive proxy to rising geopolitical tensions in Middle East (after the US killed a top Iranian military general) and Korean peninsula (after the US refused to lift the sanctions on North Korea), (iv) anticipate a seasonally good 4Q19 and 1Q20 amid higher demand for poultry products during Christmas and CNY celebrations and (v) Singapore wholesalers have resorted to importing Malaysian eggs after Ukraine import suspension, eventually lifting eggs’ demand. Valuation is undemanding at 9.6x FY20 P/E, 41% lower than its peers. Technically, the stock is ripe for a triangle breakout with mid to LT targets at RM0.58-0.635 levels.
Pending a bullish triangle breakout. We believe CCK is at the tail end of its 6M sideways consolidation and is ripe for a bullish triangle breakout. A decisive breakout above RM0.545 (downtrend line and 200D SMA) will spur prices higher towards RM0.58 (50% FR) before reaching our long term target at RM0.635 (76.4% FR). Key supports are RM0.52 (support trendline) and RM0.50. Cut-loss at RM0.49.
Source: Hong Leong Investment Bank Research - 6 Jan 2020
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