Result

• CCK Consolidated Holdings Berhad (CCK) registered a net profit of RM11.1m during 4QFY20 which soared 20.1% qoq and 14.8% yoy. Meanwhile, revenue rose 7.4% qoq and 2.3% yoy.

• Above expectation. For the full year of FY20, the Group’s 12MFY20 net profit increased 7.0% y-o-y despite marginal dropped in revenue (-0.4% yoy) given better earnings in Food Service and Retail segments despite disappointing sales in all segment except Retail.

• Above estimates. The Group’s 12MFY20 net profit of RM36m was above our in-house (achieving 117.6%) and market estimates (108.8%) in view of better performance of its Retail segment despite the Covid-19 pandemic outbreak.

Comment

• Better QoQ performance given stellar segments except Food Service. The Group 4QFY21’s revenue and operating profit (OP) increased 7.4% qoq and 15.7% qoq respectively underpinned by strong results in Poultry segment (revenue:+8.9% qoq; OP:+34.4% qoq), Prawn segment (revenue:+73.4% qoq; OP:+751.3% qoq), and Retail segment (revenue:+7.2% qoq; OP:+17.1% qoq) amid easing movement control order during this period. However, Food Service segment remains lackluster as revenue and operating profit dropped 43.3% qoq and 67.6% qoq respectively due to closure of schools as well as lower footfall at its Food and Beverages (F&B) outlets. In addition, the number of retail stores opened during 4QFY21 increased from 64 stores in 3QFY21 to 67 stores following the opening of one supermarket and two retail stores.

• Higher raw materials bogged down earnings on YoY despite improved revenue. CCK’s operating profit tumbled 5.6% yoy due to sluggish operating profit from Poultry (- 28.2% yoy) and Prawn (-46.5% yoy) given higher soy and corn prices. Therefore, the Group’s operating profit margin dropped 0.6ppts during this period. Nevertheless, operating profit for Food Service and Retail were higher by 81.1% yoy and 22.5% yoy respectively. Besides, revenue was higher to 2.3% yoy underpinned by strong results in Prawn segment (+1.9% yoy) and Retail segment (+10.33% yoy). Strong revenue for retail segment came after its second supermarket (CCKLocal) was opened in Kota Kinabalu, Sabah in Nov’20. In addition, 3 CCK Fresh Mart retail outlets were opened in Sarawak in Asajaya, Song and Simunjan.

• Soothing FY20. Cumulatively, full year FY20’s revenue/operating profit was down 0.4% yoy and 1.1% yoy respectively as business operations were affected by Covid-19 pandemic. Prawn segment showed massive decline in both revenue and operating profit due to closure of borders that led to lower exports as well as lower prawn exports prices. Nevertheless, Retail segment picked up, thanks to higher number of retail stores with the introduction of new format stores (FY20: 65 retail stores, 2 supermarkets).

Earnings Outlook

• We tweaked up our earnings forecasts for FY21F by 4.6% to RM38.6m and introduced and FY22F earnings forecast of RM42.6m which represents a growth of 10.4% yoy

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 12.3x.

• 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 - 26 Feb 2021