Company Results 27 May 2021 CCK Consolidated Holdings Berhad

INVESTMENT RESEARCH REPORT _{JF APEX SECURITIES BERHAD} (47680-X) %9 [ Share Price RM0.675 Target Price RM0.79 Stock Data

Bursa / Bloomberg code 7035/ BMHB MK Market / Board Main / Industrial Syariah Compliant status Yes

FTSE4Good Index No

ESG Rating ✩

Issued shares (m) 626.64

Market cap RM422.99

52-week price Range RM0.48– 0.76

Beta (against KLCI) 1.09

3-m Average Daily Volume 2.11m 3-m Average Daily Value^ RM1.44m Share Performance 1m 3m 12m Absolute (%) -2.9 -0.7 35.0 Relative (%-pts) -0.1 14.4 22.9 Major Shareholders % Central Coldst SA Sdn Bhd 22.05 SK Tiong Enterprise Sdn Bhd 16.50 Tiong Su Kouk 5.53 0.40 0.45 0.50 0.55 0.60 0.65 0.70 0.75 0.80 Source: Bloomberg Nursuhaiza Hashim 03-87361118, ext. 752 nursuhaiza@jfapex.com.my

Result

 CCK Consolidated Holdings Berhad (CCK) recorded a net profit of RM6.1m during 1QFY21 which depleted 45.3% qoq and 25% yoy. On the same note, revenue stood at RM163.7m which was down 7.7% qoq but up 1.7% yoy.

 Below-than-expected result. As for 3MFY21, the Group’s net profit was below our in house and market expectations which only accounted for respective 15.9% and 15.5% of full year earnings. The lower-than-expected result was due to subdued performance from all segments except Retail segment.

Comment

 Subdued QoQ performance resulted from spike in Covid-19 cases in Sarawak. CCK’s revenue and operating profit (OP) tumbled 7.7% qoq and 44% qoq respectively given higher Covid-19 cases in Sarawak during 1QFY21. Retail segment’s revenue and OP deteriorated 5.8% qoq and 7.3% qoq respectively due to closure or minimal outlets operation in northern region of Sarawak. Besides, Food service business segment was also dampened by higher Covid-19 cases (as revenue and OP down 32% qoq and 66.8% qoq respectively) which led to closure of schools thus affecting their food contractor customers. Additionally, Prawn segment depleted 28% qoq and 73.5% qoq in revenue and OP respectively following continuous subdued global demand and pricing of prawns. However, soothing result from Prawn segment was offset by contribution from local sales as the Group shifted sales to local market instead of exports market (exports sales declined by 40% during 1QFY21). Moreover, the Group highlighted that revenue contribution from Indonesia operation improved to 18.3% in Mar’21 as compared to 17.9% in Dec’20 given massive production and sales of sausages and nuggets.

 Encouraging Retail segment failed to offset disappointing YoY growth. The Group’s OP declined 27.8% yoy despite higher revenue which improved 1.7% yoy. Soothing OP was dented by higher raw material cost which resulted in dismal Poultry’ segment, as OP margin slid -18.2ppts yoy. Nevertheless, Retail segment managed to register stellar growth as revenue and OP rose 7.1% yoy and 24% yoy respectively banking on opening of two CCK Local supermarkets and four CCK Freshmart retail stores during the year. One new outlet has commenced operations in Keningau, Sabah during 1QFY21. As of 1QFY21, CCK has 68 total stores (vs 1QFY20: 62 stores). As for Indonesia operation, the Group said that revenue improved by 18.2% yoy and new factory and logistic centre in Pontianak, Indonesia has commenced its

Company Results 27 May 2021

CCK Consolidated Holdings Berhad BUY

A bumpy start

Maintained

Company Description

CCK Consolidated Holdings Berhad through its subsidiaries, processes poultry, seafood, and prawns. CCK also trades and retails cold storage goods and livestock farming as well as provides transportation services and veterinary supplies.

operation in Jan’21 to cater massive sausage production.  Opening of new outlets will still on track amid

unforeseen spike in Covid-19 cases. Looking forward, the Group remains cautious on the business sentiment and outlook on the back of rising materials cost which could affect its business cost structure and margin coupled with slower vaccination roll-outs in East Malaysia. Therefore, CCK will put in concerting effort to mitigate the risk and rising cost amid this challenging environment. Despite uncertainty triggered by resurgence of Covid-19 cases, the Group still remains sanguine to open its third CCK Local supermarket in Sibu, Sarawak in 4QFY21 as well as four CCK Freshmart retail stores in the remaining quarters of the year.

Earnings Outlook

 In view of lower-than-expected earnings, we tweaked down our earnings forecasts for FY21F and FY22F by 8.4% and 1.9% to RM35.1m and RM41.5m respectively to account for lower revenue and margin.

Valuation/Recommendation

 Maintain BUY call on CCK with an unchanged target price of RM0.79 as we roll over our valuation to FY22F. Our valuation is now pegged at 12.3x FY22F PE and PER assigned is closed to its 3-year historical average PE of 12.1x. We expect the Group to register healthy business growth in FY22F banking on more outlets to be opened across East Malaysia, full vaccination roll-out in the nation as well as higher contribution from Indonesia operation.

 We favour the stock for its: 1) strong presence in East Malaysia with its dominant position in poultry; 2) Integrated poultry farming with end-to-end upstream to downstream business model; 3) Enjoying cheaper and better control of feeds costs via its associate, Gold Coin Sarawak Sdn Bhd (GCS); and 4) Strong earnings track record against its closest comparable peers.

Quarterly Results

Poultry

22.4 25.1 25.0

-11.0%

-10.5%

Prawn

4.6 6.4 5.0

-28.0%

-6.8%

Food service

1.9 2.8 5.2

-32.0%

-62.9%

Retail

134.8 143.0 125.9

-5.8%

7.1%

Poultry

(2.2) 2.5 2.1

-186.3%

-201.6%

Prawn

0.3 1.0 (0.1)

-73.5%

-312.9%

Food service

0.1 0.3 0.6

-66.8%

Year En d 3 1 Decemb er (R M m) 1 QFY2 1 4 QFY2 0 1 QFY2 0 Qo Q Yo Y

-85.0%

Retail

9.1 9.8 7.3

-7.3%

24.0%

Poultry

-9.7%

10.0%

8.5% -19.6ppts -18.2ppts

Prawn

5.7%

15.5%

-2.5% -9.8ppts

8.2ppts

Food service

4.5%

9.2%

11.1% -4.7ppts

-6.6ppts

Retail

6.7%

6.8%

5.8% -0.1ppts

0.9ppts

Revenue

163.7 177.4 161.0

1.7%

Gross Profit

33.0 37.2 31.0

6.3%

Operating Profit

7.0 12.6 9.7

-27.8%

Profit Before Tax

7.9 14.4 10.5

-24.7%

Net Profit

6.1 11.1 8.1

-25.0%

Gross Profit

20.1%

21.0%

19.3% -0.8ppts

0.9ppts

Operating Profit

4.3%

7.1%

6.1% -2.8ppts

-1.8ppts

Profit Before Tax

4.8%

8.1%

6.5% -3.3ppts

-1.7ppts

Net Profit

3.7%

6.3%

5.0% -2.5ppts

-1.3ppts

-7.7%

-11.4%

-44.0%

-45.0%

-45.3%

Margin (%)

Effective tax rate

23%

23%

23%

Income Statement

Revenue 559,049 615,789 614,833 651,314 656,043 692,706 733,692

Gross Profit 89,433 117,704 108,892 122,558 127,572 135,169 130,995 Profit Before Tax 25,376 38,637 34,365 42,892 47,910 46,151 53,338 Profit After Tax 18,869 28,462 25,848 33,205 37,482 35,087 41,500 Net Profit 18,855 28,434 25,817 33,170 37,482 35,087 41,500

10.1% -0.2% 5.9% 0.7% 5.6% 5.9%

Gross Profit 31.6% -7.5% 12.5% 4.1% 6.0% -3.1%

Profit

Year t o 31 December (R M m) FY16A FY17A FY18A FY19A FY20A FY21F FY22F

Before Tax 52.3% -11.1% 24.8% 11.7% -3.7% 15.6% 50.8% -9.2% 28.5% 13.0% -6.4% 18.3% 16.0% 19.1% 17.7% 18.8% 19.4% 19.5% 17.9% 4.5% 6.3% 5.6% 6.6% 7.3% 6.7% 7.3% 3.4% 4.6% 4.2% 5.1% 5.7% 5.1% 5.7% 0.02 0.03 0.0125 0.0175 0.00 0.02 0.02 3.0% 4.4% 1.9% 2.6% 0.0% 2.5% 2.9% 33.5% 33.3% 30.5% 33.3% 0.0% 30.0% 30.0% 0.06 0.09 0.04 0.05 0.06 0.06 0.07 11.3 7.5 16.5 12.8 11.4 12.1 10.3 0.9 0.8 1.7 1.5 1.4 1.3 1.3 0.7 0.8 0.4 0.4 0.5 0.5 0.5 8.1% 10.2% 10.1% 12.6% 12.5% 10.9% 12.3% 5.2% 6.9% 6.8% 8.6% 8.8% 8.0% 9.2% 0.36 0.28 0.30 0.20 0.13 0.09 0.04 Gro w t h M argin

Per Share Level

R at io

Revenue

Net profit

Gross profit margin Profit before tax margin Net profit margin

Dividend per share (sen) Dividend Yield (%) Dividend Payout Ratio (%) Earnings per share (sen) PE Ratio (x)

Price/BV (x) NTA per share

ROE (%) ROA (%) Net Gearing (x)

Balance Sheet

17,771

28,397

24,075

39,101

49,861

56,512

70,007

123,687 132,186 132,791 127,758 125,205 120,930 112,450

222,696 220,077 213,635 235,743 250,834 261,214 267,384

364,154

380,660

370,501

402,602

425,900

438,656

449,841

233,740 255,622 250,118 275,773 300,932 323,034 336,806

28,385 25,242 20,694 33,233 36,911 30,073 28,994

101,568 99,395 99,256 93,215

Balance Sheet (R M m) FY16A FY17A FY18A FY19A FY20A FY21F FY22F

ASSETS Cash

Current assets Non-current assets Total Assets

EQUITY AND LIABILITIES Shareholders' Fund

Non-current Liabilities Current liabilities Others

Total Equities and Liabilities

87,965 85,460 83,955

460 402 433 380 92 89 86

364,154 380,660 370,501 402,602 425,900 438,656 449,841

Cash flow Statement

35,482 37,370 31,812 50,500 59,676 50,681 57,495

(33,568) (15,535) (26,585) (23,879) (22,132) (29,850) (29,850)

(6,200) (8,857) (10,326) (13,701) (21,316) (15,700) (15,700)

(4,286) 12,978 (5,098) 12,920 16,227 5,131 11,945

137 (528) (315)

Cash Flow (RMm)

FY16A

FY17A

FY18A

FY19A

FY20A

FY21F

FY22F

Operating

Investing

Financing

Net Cash In/(out flow)

Effect of exchange rate

Begin Cash/Cash Equiv.

End'g Cash/Cash Equiv.

210 (311) - -

27,194 23,045 35,494 30,081 43,211 59,128 64,259

23,045 35,494 30,081 43,211 59,128 64,259 76,204

JF APEX SECURITIES BERHAD – CONTACT LIST

JF APEX SECURITIES BHD Head Office:

6th _{Floor, Menara Apex}

Off Jalan Semenyih Bukit Mewah 43000 Kajang Selangor Darul Ehsan Malaysia

General Line: (603) 8736 1118 Facsimile: (603) 8737 4532

PJ Office:

15th _{Floor, Menara Choy Fook On}

No. 1B, Jalan Yong Shook Lin 46050 Petaling Jaya Selangor Darul Ehsan Malaysia

General Line: (603) 7620 1118 Facsimile: (603) 7620 6388

DEALING TEAM Head Office:

Kong Ming Ming (ext 3237) Shirley Chang (ext 3211) Norisam Bojo (ext 3233)

Institutional Dealing Team:

Zairul Azman (ext 746) Nur Nadia (ext 741) Siti Nur Nadhirah (ext 743)

PJ Office:

Azfar Bin Abdul Aziz (Ext 822)

RESEARCH TEAM Head Office:

Lee Chung Cheng (ext 758) Lee Cherng Wee (ext 759) Nursuhaiza Hashim (ext 752) Jayden Tan (ext 754)

JF APEX SECURITIES - RESEARCH RECOMMENDATION FRAMEWORK

STOCK RECOMMENDATIONS

BUY : The stock’s total returns* are expected to exceed 10% within the next 12 months.

HOLD : The stock’s total returns* are expected to be within +10% to – 10% within the next 12 months.

SELL : The stock’s total returns* are expected to be below -10% within the next 12 months.

TRADING BUY : The stock’s total returns* are expected to exceed 10% within the next 3 months.

TRADING SELL : The stock’s total returns* are expected to be below -10% within the next 3 months. *capital gain + dividend yield

SECTOR RECOMMENDATIONS

OVERWEIGHT : The industry as defined by the analyst is expected to exceed 10% within the next 12 months.

MARKETWEIGHT : The industry as defined by the analyst is expected to be within +10% to – 10% within the next 12 months.

UNDERWEIGHT : The industry as defined by the analyst, is expected to be below -10% within the next 12 months. ESG RECOMMENDATIONS

✩✩✩✩ : Top 25% by ESG Ratings amongst PLCs in FBM EMAS that have been assessed by FTSA Russell ✩✩✩ : Top 26-50% by ESG Ratings amongst PLCs in FBM EMAS that have been assessed by FTSA Russell ✩✩ : Top 51-75% by ESG Ratings amongst PLCs in FBM EMAS that have been assessed by FTSA Russell ✩ : Bottom 25% by ESG Ratings amongst PLCs in FBM EMAS that have been assessed by FTSA Russell

Source: Bursa Malaysia and FTSE Russell

JF APEX SECURITIES BERHAD – DISCLAIMER

Disclaimer: The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of JF Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of JF Apex Securities Berhad and are subject to change without notice. JF Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

JF Apex Securities Berhad does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against JF Apex Securities Berhad. JF Apex Securities Berhad may from time to time have an interest in the company mentioned by this report. This report may not be reproduced, copied or circulated without the prior written approval of JF Apex Securities Berhad.

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