Results

• In 2Q23, CCK Consolidated Holdings Berhad (CCK) reported revenue of RM247.1 million, reflecting a 2.7% qoq increase and a substantial 17.7% yoy growth. Likewise, quarterly net profit showed a 3.7% qoq increase and a notable 44.3% yoy rise, reaching RM16.8 million.

• Within expectations – CCK's revenue for 1HFY23 amounted to RM487.6 million, representing 54.7% of our forecast and 52.4% of consensus forecast. Similarly, the net profit for the same period in 2023 reached 49.1% of our estimate and 54.5% of the consensus estimate.

• Slight QoQ Growth - Revenue inched up by 2.7% qoq to RM247.6 million from 1Q23. This improvement was primarily attributed to heightened activity in the retail segment, driven by increased consumer demand. PBT also saw a marginal increase to RM21.7 million, with gross profit margins improving to 21.6% from the 20.3% observed in the previous quarter.

• Robust YoY Performance - CCK demonstrated strong yoy revenue growth in 2Q23 with a 17.7% yoy increase to RM247.1 million. This growth was primarily driven by contributions from PT Bonanza, which had a positive impact on the prawn segment, and a stellar performance from the retail segment fueled by heightened consumer demand. The retail segment saw remarkable growth of 11.4% yoy during the quarter, attributed to contributions from the well-established retail network and robust consumer demand. PBT showed significant growth, surging by 45.8% yoy to RM21.7 million, mainly due to the outstanding performance of the retail segment and the substantial contribution from PT Bonanza.

• Retail segment leading growth - The retail segment, which continues to be the largest contributor to revenue, generated RM375.6 million in the 1HFY23. This represents an increase of 11.2% yoy due to several factors, including more matured contributions from our well-established retail network, higher sales volumes from both the retail and wholesale channels, and robust demand for its in-house manufactured processed products in Indonesia. It is worth noting that the retail segment maintained healthy sales volumes thanks to the expansive retail network, while the operations in Indonesia benefited from strong demand for in-house manufactured processed products.

• During the 2Q23, no new stores were added to the retail network. As of the end 2Q23, the Group's retail presence consists of 3 CCKLocal Supermarkets, 64 CCK Fresh Mart retail stores, and 6 CCK wholesale stores, totaling 73 stores in all.

• The cash balance amounted to RM65.0 million, reflecting a notable increase of 14.9% compared to the balance at the end of the previous financial year in 2022.

• No dividends were declared in the second quarter of 2023. Nevertheless, we expect full year DPS of 3.0 sen based on an assumed DPR of 30.0%, resulting in a decent yield of 4.0%.

Comments

• Cautiously optimistic. The management is highly optimistic and actively taking measures to address the challenges of the business landscape in 2023. They are focused on mitigating risks and optimizing the efficiency and productivity of their business segments. Looking ahead, the Group anticipates positive and robust sales, particularly in the retail segment, which continues to be the main revenue driver. However, one key risk currently observed is the volatility of the US dollar against the Malaysian Ringgit, which has an impact on the fluctuation of corn and soy prices.

• We hold a positive view for CCK as shown by the on-track quarterly results.

Earnings Outlook / Revision

• Given the Group's continued steady performance, we are upholding our net earnings forecasts at RM67.0 million for FY23f and RM76.3 million for FY24f. Similarly, our revenue predictions remain unchanged at RM892.2 million for FY23f and RM989.1 million for FY24f.

Valuation and Recommendation

• We are maintaining our BUY recommendation for CCK with a higher target price of RM0.96 (previously RM0.83), which indicates a potential upside of 17.6% from the current price.

• Our valuation is pegged at a higher PE multiple of 11.5x (previously 10x) FY24 EPS of 12 sen, which is at its 3Y +1.5 Std Dev PE multiple.

• We lifted the assigned PE multiple given the positive industry outlook driven by the recovery in consumer behaviour and CCK's steady business growth.

Source: JF Apex Securities Research - 23 Aug 2023