Result

• CCK Consolidated Holdings Berhad’s (CCK) net profit surged 61.6% qoq and 83.8% yoy to stand at RM11.1m in 1QFY22. On the same note, revenue stood at RM 197.4, which advanced by 5.2% qoq and 20.6% yoy.

• Exceeding expectation. The Group’s net profit of RM11.1m exceeded our in-house and market expectations, accounting for 39.8% and 36.5% respectively. Result was spurred by higher revenue from Poultry, Food services and Retail segments despite sluggish earnings from Prawn segments.

Comment

• Higher sales volume coupled with opening of new outlets drove QoQ earnings. Revenue surged 5.2% qoq to RM23.5m thanks to higher sales volumes in the poultry (Revenue: +23.2% qoq) and retail (Revenue: +3.2% qoq) segments. Additional production capacity added from its new facilities in Pontianak, Indonesia (commissioned in January 2021) allowed the Group to cater the increase in demand for sausages, nuggets and other processed products which we seen as most demanded products from the Indonesian market. The Food service segment rose by 145.9% qoq to RM4.3m largely due to reopening of government schools in Sarawak. On the flip side, the Prawn segment saw a disappointing earnings with revenue dropped by 37.5% qoq resulted from ongoing disruptions in the supply chain coupled with lower production yields. The management guided that the proportion of export volume in the Prawn segment shrank whilst domestic sales via the Group’s retail channels remained robust.

• Stronger YoY earnings as consumer demand on Poultry and Retail segments recovered, margin improved as well. The Group recorded a Profit before Tax of RM14.5m, which increased 83.8% yoy attributable to turnaround in the poultry segment as well as strong performance from the retail segment. The poultry segment overturned a loss due to effective cost control measures incurred and the success of cost pass through mechanism. Besides, Gross Profit margin inched up by 0.4ppts to 20.6% despite a significant hike in earnings. The management guided that the margin was impacted by the elevated feed prices and weakness in the Malaysian Ringgit. The strong performance in retail segment was largely driven by opening of new retail outlets and supermarkets during the previous few quarters. During this period, the Group has expanded its retail network to a total number of 72 outlets (vs 1QFY21: 68 outlets).

• Modest outlook ahead. The relaxation of COVID-19 restriction by the Malaysia Government in April 2022 will bring positive impact towards the Group especially to its retail and wholesale channels. Going forward, considering it is less likely for the Malaysia Government to re-impose any strict lockdown countrywide, demand for poultry products will continue to grow as all food and beverage outlets are now allowed to operate in full capacity with consumers resume to dine in as well as reopening of schools. Besides, we are still positive that the proposed acquisition of PT Bonanza will potentially uplift the Group’s earnings upon completion of the proposed acquisition. However, we are aware that the strengthening of US dollar and continuously hike in feed prices such as corn and soy bean will continue to compress the Group’s margin. We expect the rising commodity prices to prolong at least until end of CY2022, thus affecting their business cost structure and margin. Moreover, we also see the supply chain issue arising from the Russia-Ukraine conflicts to continue to hurt its Prawn segment.

Earnings Outlook

• We upgrade our FY22F and FY23F net earnings forecast by 30.1% and 20.7% to RM36.3m and RM37.9m respectively as we envisage better earnings from its Food Services and Retail Segments.

Valuation/Recommendation

• Maintain HOLD call on CCK with an unchanged target price of RM0.58. Our valuation is now pegged at 9.6x FY22F PE of 6 sen EPS (4 sen previously), which is below its 5-year mean PE of 11.8x but higher than its 5-year -1 standard deviation of mean PE of 9.5x.

Source: JF Apex Securities Research - 27 May 2022