CCK seen un­der­val­ued de­spite rally

CIMB: Mar­ket has yet to ap­pre­ci­ate com­pany’s poul­try and re­tail busi­nesses

The Star Malaysia - StarBiz - - Companies & Strategies - By GANESHWARAN KANA ganeshwaran@thes­tar.com.my

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.

Growth po­ten­tial: A CCK store in Kuch­ing. 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.

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