CCK seen undervalued despite rally
CIMB: Market has yet to appreciate company’s poultry and retail businesses
CCK Consolidated Holdings Bhd remains one of the undervalued integrated poultry producers listed on Bursa Malaysia, even as the counter has rallied over the last one year.
The company, which saw its share price surged by nearly 81% in the past 12 months, has a comparably lower price-to-earnings (PE) multiple of 13.73 times compared with other industry peers.
In comparison, Lay Hong Bhd, QL Resources Bhd and Cab Cakaran Corp Bhd have PEs of 28.73 times, 32.21 times and 11.06 times respectively.
CIMB Research believes that CCK remains attractive among the consumer stocks under its watch, largely attributed to its undervaluation, strong growth prospects and its captive markets in Sabah and Sarawak.
“CCK’s share price is lagging behind its peers in the consumer sector.
“We believe that the market has yet to appreciate the company’s’ integrated poultry business model and its retail arm of 56 selfowned retail outlets.
“This is given that retail players under our coverage such as Bonia, Bison and 7-Eleven are trading at significantly higher valuations in terms of PE,” says the research house, which reiterates its “add” call on the integrated poultry producer.
In the first half of financial year 2017, CCK’s net profit was up by 48.5% year-onyear (y-o-y) to RM10.07mil, led by stronger top line contribution from the retail segment.
However, the surge in bottom line was partially offset by the decline in poultry segment’s performance, due to depressed prices for table eggs and over-supply and competition for the double festivities of Gawai and Hari Raya Aidilfitri in June.
That said, the poultry segment may perform stronger in the second half of the year, driven the recent decline in feedstock prices as well as the anticipated improvement in farm output.
CCK’s revenue in the period also improved by 11% to RM298.25mil, from RM268.98mil a year earlier. The retail segment is CCK’s largest revenue and earnings contributor, making up of nearly 81% of the company’s top line in the first half of FY17.
Actively pursuing expansion
With a market capitalisation of approximately RM316mil, the Main Market-listed group is Sarawak’s largest poultry player and commands 35% of the state’s poultry market share.
Besides Sarawak, it also has exposure in the poultry markets of Sabah and Indonesia.
Currently, CCK is in the midst of expanding and upgrading its existing facilities, to improve its operational capacity.
CCK’s abattoir in Kuching is currently undergoing a RM3mil expansion to gradually increase production output by 33.3% up to 40,000 birds on a daily basis, apart from producing higher-margin products.
At present, the facility’s daily output capacity stands at 30,000 birds.
The group’s existing poultry farms are also being upgraded, apart from the addition of new broiler farms in Sarawak moving forward.
As for the company’s retail segment, CCK is set to exit the Peninsular Malaysia market by year-end, as it plans to focus its retail operations entirely in Sabah and Sarawak.
Speaking with StarBizWeek, CCK group managing director John Tiong Chiong Hiiung, however, does not discount the possibility of re-launching CCK’s retail stores in Peninsular Malaysia.
“Our two stores will be closed by this year so that we can focus on our expansion plans in Sabah and Sarawak.
“Perhaps, in future, if the conditions are right, we may return to Peninsular Malaysia,” he says.
CCK’s move to close these outlets is reasonable as they have been loss-making and are not expected to improve significantly in the near term.
CIMB Research is positive on the closure as it is expected to boost CCK’s net profit, mainly due to the result of absence of losses from both outlets, which is estimated to be RM500,000 in the financial year of 2016 (FY16)
In addition, CCK could also enjoy positive rental income of of up to RM800,000 per annum, if the CCK-owned shoplots where both outlets operate currently, are rented out.
Moving forward, with the closure of both stores in Peninsular Malaysia. CCK may add up to four new stores in Sabah and Sarawak by the end of next year.
Tiong adds that any future expansion of CCK’s operations, will be funded internally without resorting to external borrowings. The company which sits on a cash pile of RM22mil, has a gearing ratio of 0.012 times.
When asked whether CCK is on the lookout to venture into e-grocery, Tiong feels that it is unsuitable to introduce e-grocery in Sabah and Sarawak, at the moment.
“Our customers prefer to come in and select their products. Quite a few of our customers take advantage of our meat cutting services whereby customers can have their meat products cut to their requirements.
“We also offer non-poultry products in our stores such as mixed vegetables, prawns and fish balls, to name a few,” he says.