Following our recent meeting with CCK's management, we remain optimistic on the group's growth trajectory, particularly driven by the expansion of its Indonesian operations. CCK plans to triple its Indonesian food processing capacity to 30k tonnes per annum. This expansion is expected to commence by 4QCY2025. Recall that Creador had recently acquired a 40% stake in PT Adilmart, CCK's Indonesian subsidiary for RM163m. Additionally, we believe CCK's Malaysian retail operations are well-positioned to benefit from the rise in consumer disposable income, as the increase in minimum wage should act as a tailwind for consumer spending. We keep our earnings estimate unchanged at this juncture, as we do not expect significant contribution from the new Indonesian plant until FY27. We maintain our Outperform call on CCK, with an unchanged target price of RM1.75, based on 11x FY25F EPS.

• Results recap. Cumulative 9MFY24 revenue grew by 7% YoY to RM792m, driven by better performances from retail and poultry segments on higher sales volume from both retail and wholesale channels. Meanwhile, 9MFY24 core net profit rose 25% YoY to RM64m, reflecting enhanced operational efficiency coupled with lower feed input costs.
• Exciting growth prospects from Indonesia. We understand that the group has earmarked RM80m(fully funded by the proceeds from Creador's new share subscription of PT Adilmart)to build a new production plant to meet the growing demand for processed food products (Eg: sausages, meatballs, burger etc) in Indonesia. The plant is located in Boyolali, Central Jawa, strategically closer to key raw material sources, which should provide better operational efficiency and further strengthen the group's competitive edge. Over the next 5 years, CCK plans to triple its Indonesian food processing capacity to 30k tonnes per annum, with the production set commence in 4QCY2025. This increase in capacity will not only support the growing demand for its processed food products, it will also enable CCK to broaden its sales footprint. The group plans to widen its distribution channels while increasing its market penetration by expanding into key cities such as Medan and Surabaya. As the facility is expected to breakeven at 30-40% utilisation rate, we do not expect significant contribution until FY27.
• Rising minimum wage, a boon to consumer spending. While the increase in minimum wage will increase its labour cost, we understand that the impact is minimal, as impact will be cushioned as the group could pass on cost should the need arises. Moreover, the wage adjustment should act as a positive catalyst for consumer spending, which will likely benefit CCK's retail operations. Given the inelastic demand for staple goods, the group stands to benefit from increased consumer purchasing power. Notably, when minimum wage was raised to RM1,500/month in May 2022, CCK's retail segment posted a 7% YoY revenue growth in 2023.

Source: PublicInvest Research - 15 Jan 2025