CCK Consolidated’s (CCK) core profit of RM23.9m (YoY: >100%) for 9MFY19 surpassed our and consensus expectations, making up 85% of full-year estimates respectively. The results would have been better if not for a strengthening of the US Dollar by 3.7% YoY in the first nine months which affected its imported feed cost. Despite the stronger-than-expected results, we retain our projections as the final quarter is a seasonally weaker one. No dividend was declared for the quarter. We continue to like CCK for its defensive business nature and we see a huge upside potential given its growth prospects. We maintain our Outperform call with an unchanged TP of RM0.79 based on 14x FY20 EPS.

• 3QFY19 revenue (QoQ: +0.2%, YoY: +9.7%). For the quarter, CCK saw its sales rise by 9.7% YoY to RM165.7m, driven by stronger contributions from the poultry (+31.9%) and prawn (+80.5%) segments, which partly cushioned weaker sales from the food services (-21.4%) and retail (-2.1%) segments. Encouraging poultry sales of RM31.9m were mainly led by an increase in egg prices, up more than 5.4% YoY while broiler prices rose 10.8% YoY. Prawn sales surged to RM7.4m, contributed by stronger export volumes to Australia, Japan, Korea and Taiwan. On the other hand, sales from both the food services and retail segments fell to RM3.3m and RM120.4m respectively. Contribution from the processed food segment in Indonesia improved from 15.7% to 16.2% as of 9MFY19.

• 3QFY19 core net profit (QoQ: -17.2%, YoY: >100%). 3QFY19 earnings doubled to RM7.7m, mainly driven by stronger contributions from i) poultry and food services segments (+50%). Poultry earnings increased to RM2.6m, bolstered by lower feed costs. Food service segment contributions improved from RM0.4m to RM0.6m. Retail earnings, which made up almost 59% of the group’s bottomline, fell 6.7% YoY to RM5.6m. Meanwhile, the prawn segment saw minimal earnings contribution due to stiff competition which resulted in margin pressures. Earnings contribution from its 27.2%-owned animal feed distributor, Sarawak Gold Coin S/B doubled to RM1.4m.

• Current updates. The Group is planning to open 1 more new store in 4Q, bringing the total number of stores in Malaysia to 59. Egg prices have been strengthening since July. At this point of writing, average price for Gred-A eggs stand at RM0.36/unit. In anticipation of the increasing egg consumption ahead of the Chinese New Year and Christmas celebrations, we expect to see stronger egg prices which may exceed RM0.40/unit in the near-term. Livestock prices have been on the downstrend since last month however, falling more than 10%. Meanwhile, soybean meal and corn, which collectively makes up almost 80% of the total poultry feed, saw a decline of 11.1% YTD.

Source: PublicInvest Research - 22 Nov 2019