KUALA LUMPUR: CIMB Equities Research is retaining its Add call for poultry company CCK Consolidated with a target price of RM1.65, which is 45.8% above the last traded price of RM1.13.
It said on Monday CCK is its top pick in the small cap space and its TP of RM1.65 is based on an unchanged 15 times CY19F P/E (30% discount to CIMB Malaysia’s consumer sector target P/E).
“We believe that the stock’s share price has more room to grow, given its: i) strong growth prospects backed by a three-year EPS compounded annual growth rate (CAGR) of 22.9%, ii) captive market in East Malaysia, with 56 strategically-located outlets, and iii) strong demand for poultry products. Downside risk: poultry-related diseases,” it said.
CIMB Research said CCK will release its full-year FY17F results this week.
It expects CCK to record a higher on-year 4Q17F net profit in the range of RM5.5mil to RM7.5mil (vs 4QFY16’s RM5mil), bringing FY17F net profit to RM26mil to RM29m, slightly above its estimates.
This is thanks to higher contributions from both retail and poultry divisions as well as better cost efficiencies.
“Still, 4QFY17F net profit should be weaker on on-quarter basis vs 3Q17’s RM9.8mil, as 4Q is seasonally-weaker due to the school holidays leading to lower poultry demand,” it said.
The expansion of its Kuching abattoir has recently been completed, boosting its production by 33.3% to 38,000-40,000 birds daily. The larger floor space will provide room for a wider cold-storage area and more space to produce higher-margin products i.e. deboning and parts separation.
The installation of a marinating facility in its Sabah abattoir has also been completed, allowing CCK to produce marinated goods to add to its product range while catering to more corporate customers that require these services.
Recently, global fast-food chains including Mcdonald’s and KFC have highlighted plans to speed up expansion in Malaysia.
“As the East Malaysia market is fairly underpenetrated by fast-food chains vs. Peninsula Malaysia, we opine that they will expand these outlets in East Malaysia.
“CCK is a key beneficiary from stronger demand for chicken as East Malaysia is its captive market. It recently recorded a sizeable growth in orders to supply chicken to fast food outlets, and this should further increase with time,” said CIMB Research.
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