KUCHING: The team at Public Investment Bank Bhd (PublicInvest Research) sees strong recovery in Sarawak’s CCK Consolidated Holdings Bhd’s (CCK) prospects after having suffered from a double whammy in recent times due to a steep decline in egg prices and an increase in feedstock cost.
The research firm in its initiation report on the stock yesterday liked CCK for being an integrated poultry player with sole focus on East Malaysia.
It was also impressed with CCK’s continuous expansion in Malaysia and Indonesia’s retail segments, as well as favourable raw material and poultry price movements.
“Being away from the crowded poultry markets in Peninsular Malaysia gives the company a solid market position and better bargaining power,” it said in the report yesterday, adding that CCK has a total of 56 retail stores, with another 6 expected to be opened by end-2019.
“In Indonesia, it will continue with its push by increasing the sausage production in Pontianak and Jakarta. The recent commencement of its new nugget line in Jakarta is set to help contribute another double-digit sales growth for the next two years.”
Established in 1996, CCK has become a fully integrated poultry player encompassing feed mill, hatchery, breeder, broiler, layer, slaughtering house and retailing, with all its core chicken products sourced internally. Today, it has a broiler production of 1.5 million birds per month and table egg production capacity of 250,000 eggs per day.
Its abattoir, which processes 50,000-55,000 birds/day, is the only poultry abattoir in Sarawak with a HACCP certification from the Malaysian government and has also received the halal certification by the Islamic Development Department of Malaysia and Sarawak Islamic Council, allowing the Group to supply its chicken products to the local and international markets.
“Being an integrated poultry player, it allows the company to fetch better profit margins with less middle-men involved,” PublicInvest Research said.
“The company has more stabilised margins and more competitive price advantage, as it has a full control over the retail pricing, which helps reduce its exposure to the fluctuation in poultry prices.”
CCK is also set to ride on the gains from the stronger sales growth backed by the expansion of retail stores in East Malaysia the commissioning of a new nugget production line in Indonesia and stronger egg and chicken prices due to tight supplies in local market.
“In addition, a recent slump in feedstock cost, which mainly consists of soymeal and corn as well as strengthening of Mthe ringgit will help ease cost pressures.”
Thus, the research firm expect sales growth of between seven to nine per cent with an improved gross profit margin of 20 to 21 per cent for FY19 to FY21. This translates into an earnings growth of 12 to 15 per cent for the next three years.
Notably, the group has set aside an annual capital expenditure (capex) a smaller budget of RM2.5 million to RM3 million for FY19, which is to be internally funded. The capex will be used mainly on replacing old equipment, expanding its retail outlets and building logistics facilities for its chilled and frozen products as well as warehouses. In tandem with the growing number of retail stores, PublicInvest saw that CCK is also considering to increase the broiler production capacity by setting up new farms in Sabah and Sarawak.