Retail division is CCK’s shining star
? 1Q22 core net profit of RM11.2m (+81.0% yoy) was above estimates, due to
higher-than-expected results from retail division and Indonesia operations.
? Despite higher feed cost prices impacting poultry division, we expect growing
contribution from retail segment to offset this impact going forward.
? Reiterate Add, with a higher TP of RM0.81 (13x CY23F P/E).
1Q22 core net profit rose 81.0% yoy; beat expectations
1Q22 revenue rose 20.6% yoy to RM197.4m, thanks to higher contribution from all
divisions. 1Q22 EBITDA margins also rose to 9.4% (+2.2% pts yoy), as greater economies
of scale (higher sales in retail division) more than offset higher feed cost in poultry division.
Accordingly, 1Q22 core net profit rose 81.0% yoy to RM11.2m; at 35% of our and 37% of
Bloomberg consensus’ FY22F estimates, this is above expectations on higher-thanexpected contributions from retail division and Indonesia operations.
Better qoq results due to festivities and pick-up in HORECA sales
On a qoq basis, 1Q22 revenue and net profit rose by 5.2% and 86.8%, respectively. This
was mainly due to CNY festivities as well as a pick-up in economic activities, post easing
of Covid-19 lockdown measures. Also, 1Q22 EBITDA margins rose 2.5% pts qoq to 9.4%,
thanks to: i) higher contribution from retail segment (better margins), ii) cost control
measures, and iii) an increase in poultry prices to pass on higher feed costs.
Any weakness in poultry segment to be offset by retail division
We expect further weakness in the poultry division going forward, owing to: i) higher feed
cost prices, ii) weaker ringgit vs US$ (leading to higher input costs), and iii) lower demand
for poultry products (surge in selling prices). Yet, what sets CCK Consolidated Holdings
apart from other poultry players is its retail division (72 outlets across East Malaysia), which
we believe can help offset any decline in poultry segment contribution, thanks to a pick-up
in demand, especially from the HORECA segment with the reopening of the economy. We
raise our FY22-24F EPS to account for higher retail and Indonesia contributions.
Plans to enter shrimp processing business in Indonesia
CCK recently announced a proposal to acquire PT Bonanza, an Indonesian company
involved in shrimp processing, for RM33.8m (US$8m), which works out to 8.7x CY20 P/E,
based on PT Bonanza’s FY20 net profit of RM3.9m (9MFY21: RM2.9m). We are neutral
on this deal — while we like the business synergies and earnings accretion of this deal,
this is a related-party transaction, and we are also concerned about the earnings volatility
of PT Bonanza’s prawn business.
Reiterate Add, with a higher TP of RM0.81
In tandem with our EPS hikes, our TP rises to RM0.81 (13x CY23F P/E, 5-year mean),
while we reiterate Add. Besides its attractive valuation (9.2x CY23F P/E, 29% discount to
its 5-year mean), we like CCK for: i) the defensive nature of its retail business, ii) its captive
market in East Malaysia, and iii) the inelastic demand for poultry goods in Malaysia.