Result

• CCK Consolidated Holdings Berhad (CCK) posted a net profit of RM9.2m during 3QFY20 which improved 22.2% qoq and 20.1% yoy. Meanwhile, revenue up 7.4% qoq but slightly down 0.4% yoy.

• As for 9MFY20, the Group’s 9MFY20 net profit inched up 3.8% y-o-y despite sluggish revenue which was down 1.3% yo-y. Higher earnings were underpinned by stellar earnings from Food services and Retail segments. Nevertheless, lower sales recorded from Poultry, Prawn and Food segments which bogged down overall revenue during this period.

• Within expectations. The Group’s 9MFY20 net profit of RM24.9m was within ours in-house (75.9%) and market estimates (71.6%) in view of easing of movement restriction which led to better business performance during recovery movement control order (RMCO) period.

Comment

• QoQ performance rebounded on the back of easing MCO. CCK’s revenue and operating profit during 3QFY20 jumped 7.4% qoq and 18.4% qoq respectively, thanks to RMCO which lifted overall business sales in Prawn, Food services as well as Retail segments. Prawn segment’s revenue rose 9.8% qoq amid turnaround in operating profit to RM0.1m from a net loss of RM0.4m during the last quarter. Also, Food service segment’s revenue spiked up 735.9% qoq while registering operating profit of RM0.8m during this period arising from opening of school as well as better footfall from their Food and Beverages (F&B) outlets, we believe. Besides, retail segment’s revenue up 5.8% qoq but operating profit down 2.0% qoq. Better sales were underpinned by recovery from their hotels, restaurants and catering establishments (HORECA) customers as most of them ha ve resumed their business operations during 3QFY20.

• Retail segment lifted overall YoY growth. CCK’s operating profit escalated 17.3% yoy despite marginal contraction in revenue which depleted 0.4% yoy. Stellar earnings during this period was mainly supported by Retail segment’s operating profit which registered a massive growth of 49.7% yoy, thanks to opening of its first supermarket in Kuching, Sarawak. Besides, Prawn segment also showed substantial growth in operating profit which increased 30.8% yoy. Nevertheless, marginal contraction in revenue was dented by slower sales in Poultry, (-29.4% yoy), Prawn (- 49.9% yoy) and Food Services (-5.7% yoy) segments which offset stellar growth of Retail segment (+10.8% yoy).

• Cumulatively, 9MFY20 operating profit only inched up by 0.9% yoy amid sluggish revenue of -1.3% yoy as business being affected by MCO imposed by government to cease the spread of COVID-19 virus. Prawn segment was heavily affected during this period as revenue decline d 25.8% yoy and posted an operating loss of RM0.4m arising from slower exports to their traditional markets such as Australia and Japan. Nevertheless, Retail segment showed some recovery (revenue and operating profit increased 0.7% yoy and 18.6% yoy respectively) as the segment was able to operate at limited business hours during MCO period. Additionally, revenue contribution from Indonesian market rose 17.6% during 9MFY20 as compared to 16.8% during 9MFY19.

Earnings Outlook

• We retain our earnings forecasts for FY20F and FY21F at RM32.8m (-1.2% yoy) and RM36.9m (+12.8% yoy) respectively.

Valuation/Recommendation

• Maintained BUY call on CCK with an unchanged target price of RM0.79 based on 13.2x FY21F PE. The PER assigned for valuation is slightly higher to its 3-year historical average PE of 12.4x.

• We favour the stock for its: 1) strong presence in East Malaysia with its dominant position in poultry; 2) Integrated poultry farming with end-to-end upstream to downstream business model; 3) Enjoying cheaper and better control of feeds costs via its associate, GCS; and 4) Strong earnings track record against its closet comparable peers.

Source: JF Apex Securities Research - 24 Nov 2020