PETALING JAYA: Backed by its vertically cohesive retail supply chain and fully integrated poultry operations, CCK Consolidated Holding Bhd is poised to maintain resilient earnings going forward.
CIMB Securities said the largest poultry goods producer in Sarawak is set to benefit from its position as a key proxy for East Malaysia’s food security and Indonesian operations.
“Sarawak’s Food Industry, Commodity and Regional Development Minister Datuk Seri Dr Stephen Rundi Utom stated that Sarawak’s food trade balance deficit rose to RM4.7bil in 2021, compared to RM3.9bil in 2018.
“As a result, his ministry is looking to industrialise the food industry in the long term to ensure food security for the state through various initiatives, including strengthening farm infrastructure and agro commodity development.
“With CCK’s position as Sarawak’s largest integrated poultry goods producer, we believe the company plays an integral role in the state’s food security efforts, especially in the poultry segment,” the research house said in a report yesterday.
The retail segment, including retail stores, supermarkets and wholesale stores, is CCK’s core business.
The group’s retail network has expanded to 83 touch points across Sabah, Sarawak and Indonesia. This comprises 59 stores in Sarawak, 16 in Sabah and eight in Indonesia (one wholesale and seven partner retail stores).
CIMB Securities said CCK’s fully integrated poultry operations supports the group’s vertically cohesive retail supply chain.
According to the company, 80% of its revenue is derived from product sales contributed by its vertically integrated supply chain.
“CCK sells all its poultry goods through its retail outlets, allowing the company to price its products competitively.
“This advantage is derived from controlling the poultry sales mix, managing supply-demand dynamics and benefiting from higher economies of scale due to the vertical integration of its business,” the research house said.
Moreover, CIMB Securities said CCK is optimistic about the potential of its Indonesian operations, on the back of solid demand for its in-house manufactured products.
“CCK stated that its Indonesian processing facilities are running near full capacity and plans to expand its production further.
“With its Indonesian operations mainly located in West Kalimantan, CCK is well-positioned to benefit from the development of Nusantara, Indonesia’s new capital located in Kalimantan,” the research house said.
Revenue contributions from its Indonesian operations have risen steadily with a five-year compound annual growth rate (CAGR) of 14.5% (from the financial year 2018 (FY18) to FY23).
This outpaced CCK’s overall topline growth which recorded a five-year CAGR of 9.8%.
With regards to poultry subsidies, CIMB Securities said the group may need to raise selling prices to offset the higher feed costs, should the government decide to lift subsidies on eggs in the future.
The government has continued subsidies for eggs, although it has discontinued subsidies for chicken on Nov 1, 2023.
“While this (if the government decides to lift subsidies on eggs) may lead to lower demand for eggs, we think CCK will remain relatively unscathed, given that it is the largest producer of poultry goods in Sarawak and East Malaysia, providing it with a captive market.
“As this will be an industry-wide situation, we believe consumers will have no choice but to continue consuming eggs, the cheapest form of protein, despite the higher prices,” the research house said.
CIMB Securities said CCK’s trades are at undemanding valuations due to lesser investors’ focus on East Malaysia-related stocks and limited institutional interests in the stock. CCK has less than 5% institutional shareholding, as stated in its FY23 annual report.
“In our view, the stock’s current price-to-earnings multiple has yet to account for its favourable growth prospects, backed by a conducive operating environment.
“We believe that current valuations have yet to account for CCK’s position as East Malaysia’s largest fresh mart operator.
“It is also Sarawak’s largest poultry goods producer (integral cog of Sabah and Sarawak’s food security ecosystem) and burgeoning prospects of its Indonesia operations, given that the bulk of its operations are located in the same province (Kalimantan) as Indonesia’s new capital, Nusantara,” the research house said.
CIMB Securities does not have a rating for CCK.
