Result

• CCK Consolidated Holdings Berhad’s (CCK) net profit surged 4.3% qoq and 116.5% yoy to stand at RM11.6m in 2QFY22. On the same note, revenue stood at RM 210m, which advanced by 17.1% qoq and 29.2% yoy.  Exceeding expectation. The Group’s 1HFY22 net profit of RM24.8m exceeded our in-house and market expectations, accounting for 68.3% and 75.6% respectively. Result was spurred by higher revenue from Retail segments resulted from overall recovery in consumer demand coupled with the re-opening of food and beverage outlets which drove wholesale volumes also boosted the performance of Retail Segment.

• Robust contribution from Retail Segment. Revenue for Retail Segment surged 3.8% qoq and 24.4% yoy as the Group see more mature contributions from its retail stores (3 CCKLocal supermarkets and 4 CCK Fresh Mart retail stores) that came on stream in the past few quarters. The Group’s Indonesian operations experienced a slight downtick of 17.7% qoq to RM 36.3m (vs 1QFY22: RM 44.1m) due to seasonally festivity-induced low production quarter (Hari Raya Aidilfitri). Despite lower production volume, demand for in-house manufactured processed products remained sturdy.

• Poultry Segment continued to see strong demand. Revenue for Poultry Segment increased by 17.1% qoq and 29.2% yoy resulted from recovery in demand for poultry products due to re-opening of food and beverage outlets, demand from institutional clients and improved consumer sentiment. The Poultry Segment recorded PBT of RM0.6m in 1HFY22, overturning a loss of RM3.7m in 1HFY21. This was mainly due to increase in sales volumes, effective cost control measures and the success of cost pass through mechanism.

• Prawn Segment remained flat. The Prawn Segment staged its comeback with revenue inched up 34.7% qoq as supply chain disruptions and lower production yields issues were eased. On the other hand, the segment revenue slid 1.1% yoy. The Group see its export volumes continued to gain momentum whilst domestic sales via own retail channels decreased due to lower production volume. Moreover, the Group’s effort in acquiring new customers bore fruit as it benefitted from higher exports to South Korea and Australia, which offset weaker demand from Japan.

• Food Service Segment continued to benefit from reopening of schools. The Food Service Segment revenue soared 19.8% qoq and 169.6% yoy due to heightened activity of government schools in Sarawak.

Comment

• Optimistic on the road ahead. With Malaysia transition into endemicity, it will bring positive impact towards the Group especially to its retail segments as business activities (F&B) are allowed to operate in full capacity. Thus, we continue to expect strong sales volumes in its retail and wholesale channels. Besides, its Indonesian facility is currently operating in full capacity to cater the demand of cold storage products locally. We understand that the Group were been able to pass through its cost effectively with combination of absorbing and passing on additional cost to its customers. In addition, we have been guided that acquisition of PT Bonanza has been completed and the earnings will be reflected under the Group beginning from Q3FY22.

• Drawbacks to our stand. While we started to see the feed cost such as soy bean and corn to rein in from its skyward drives recently, we also aware of strengthening of US dollar will continue to put pressure on the Group’s margin. Besides, we are concern that high inflationary pressure environment will affect consumers’ spending power (consumers reduced dining out, opt for affordable options for instance, frozen chicken over fresh dressed chicken).

Earnings Outlook

• We upgrade our FY22F and FY23F net earnings forecast by 27.8% and 36.7% to RM46.4m and RM51.8m respectively as we envisage strong earnings from its Retail Segments coupled with inclusion of earnings from PT Bonanza.

Valuation/Recommendation

• Upgrade to BUY call from HOLD on CCK with a higher target price of RM0.67 (RM0.58 previously). Our valuation is now pegged at 8.4x FY23F PE of 8 sen EPS (6 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 - 24 Aug 2022