Dear Readers
Financials
CCK Consolidated Bhd (CCK) is a holding company of
many subsidiaries involved in the business of supply and retail of
seafood and poultry products. CCK is based in Sibu, Sarawak.
Poultry
CCK is the biggest poultry producer in Sarawak, controlling over 35-40%
of Sarawak's poultry market. In terms of revenue, the poultry segment
contributed about 29.4% of CCK's revenue for FY2016.
CCK has an integrated supply chain. It has its own hatchery, breeder,
broiler and layer farm. Broiler simply means a type of chicken used in
meat farming. Layer farm raises egg-producing chicken (layer chicken)
for commercial egg production. Since May 2017, CCK's production capacity
should be at the level of 240,000 eggs per day.
Its farming facilities are present in Sarawak and Sabah. Details of
whether it has farming facilities in West Malaysia remains sketchy.
The poultry segment supports the retail segment.
Seafood
CCK also farms and processes seafood including prawns which is mainly
for export markets such as Japan where it will fetch a better price.
Retail and supply
Retail is the main source of revenue of CCK. (61.5% of total revenue
for FY2016). The retail part of its business consists of over 57 retail
stores in Sarawak, Sabah, Klang Valley, Jakarta and Pontianak (capital
of Kalimantan Indonesia). Most of the stores are located in Sarawak. The
company is seeking to open another 9 stores in East Malaysia over the
course of the next four years.
On top of fresh and frozen produces such as poultry, beef, mutton and
pork, the retail stores also sell processed food such as fish balls,
sausages, crab meat, mix vegetables, nuggets, chicken satay, burger
patties and etc.
CCK's retail segment sources poultry from CCK's poultry segment. CCK
also supplies its poultry to fast food chains such as KFC and McDonald,
in Sarawak.Financials
| DATA | 2016 | 2015 | 2014 | 2013 | 2012 |
| REVENUE (RM’000) | 559049 | 494095 | 451282 | 230798 | 417954 |
| OPERATING PROFIT (RM’000) | 23788 | 19046 | 14967 | 13284 | 17766 |
| PROFIT TO SHAREHOLDERS (RM’000) | 18854 | 13511 | 8281 | 8550 | 10810 |
| SHAREHOLDERS’ EQUITY (RM’000) | 233741 | 216213 | 152682 | 146059 | 144138 |
| DEBT (RM’000) | 68275 | 48174 | 32035 | 35217 | 40232 |
RATIO
|
|||||
| DEBT TO EQUITY RATIO | 0.56 | 0.54 | 0.60 | 0.50 | 0.50 |
| OCF RATIO | 0.35 | 0.24 | 0.15 | 0.21 | 0.21 |
| OPERATING PROFIT MARGIN (%) | 4.00 | 3.00 | 3.00 | 5.00 | 4.00 |
| PROFIT MARGIN (%) | 3.00 | 3.00 | 2.00 | 4.00 | 3.00 |
| EPS (CENTS) | 5.83 | 8.93 | 5.33 | 6.67 | 5.03 |
| EPS (ADJUSTED) CENTS | 5.80 | 4.40 | 2.63 | 2.36 | 2.51 |
| DPS CENTS | 2.00 | 3.00 | 2.00 | 1.50 | 2.00 |
| DIVIDEND PAY OUT (%) | 34.50 | 33.60 | 37.52 | 22.49 | 39.76 |
| P/E | 11.32 | 12.88 | 18.22 | 17.29 | 15.77 |
| ROE (%) | 7.88 | 6.38 | 5.09 | 5.22 | 5.51 |
The company's top line experienced an upward trend between FY2012 and
FY2016. Debts are at a manageable level of about RM 1 for every RM 2 of
equity. However, short term cash flow, as indicated by the operating
cash flow, looks a little stretched out, albeit improving.
ROE has gradually increased over the years under review; indicating
that the company was more efficient with the usage of its equity.
However, operating profit and net profit were razor thin. Both were
within the range of 2% - 5% per annum. However, this is an industry norm
which can be seen in other notable industry players such as CAB Cakaran
Corporation Bhd and Lay Hong Bhd.
CCK has never failed to declare dividends. During the period under
review, dividends are within the range of 22% to 40% of CCK's earnings
per share, even while the company is expanding. This, and coupled with a
low debt to equity, indicate that capital expenditure is not too
burdensome on the financials of the company.
Advantages
The supply and sale of fresh and processed food business is a resilient
business as there will always be demand for food. The healthy net
population growth of Malaysia will ensure a sustainable population size
in the near future. This bodes well with CCK's business.
The poultry and meat processing business is a competitive arena. In
Sarawak, CCK is faced with competitions from West Malaysian players such
as QL Resources Bhd and Lay Hong Bhd, and in addition to other smaller
local players. Lay Hong has a notable retail presence in Sabah through G
Mart. However, CCK is leveraging on its geographical strength by
focusing its business in the Sarawak market where it is already a
household name. As the Sarawak market has not been fully tapped,
especially in the rural areas, there is still potential for growth.
CCK's integrated supply chain ensures better profit margin for its
products. It does not rely on third party producers. Further, the
benefits of an integrated supply chain is that CCK can easily control
the quality of its products. The same also allows CCK to manage its
production volume; depending on demand or other factors. Any excess of
supply can be easily absorbed by its retail stores without compromising
margins.
CCK's products are HACCP and Halal certified. Being Halal certified
enables CCK to position its products to cater the Muslim population in
Sarawak. Muslims consist about 30% of the population of Sarawak. At the
same time, HACCP ensures CCK's products pass a high food safety
threshold implemented and audited by HACCP. This advantage may not be
much if compared to other big players, who may have the same
certifications, but it may be an upper hand, as regard to the smaller
players, who may not have these certification. Further HACCP and Halal
are usually requirements in supplying to hotel and fast food chains.
Disadvantages
Competition among poultry and meat producers can still affect CCK
earnings despite its strong position in the East Malaysian market.
An outbreak of livestock diseases may drastically affect consumer confidence, and thus the business.
There is a small exposure of foreign currency risk from the export of
products overseas, more notably in USD and Indonesia Rupiah.
Conclusion
The poultry and food retail industry has always been stable despite
economic slowdowns. The effects of an economy slowdown, in this
industry, are trivial and transient and players are quick to bounce
back. Expect no excitement in this "boring" business. But it is these
"boring" businesses which will withstand the passing of time, and the
trials and tribulations, of Mr Market. Hence, it is no surprise
that easy-to-understand and "boring" businesses can always find a home
in Warren Buffett's and Peter Lynch's portfolios.
At this moment, CCK is trading at a reasonable price albeit it share prices have risen about 66%,
in the past year. But I won't be jumping in anytime soon. CCK's shares
are worth revisiting only when its share prices are more attractive;
somewhere between the RM0.85 - RM0.90 range, unless fundamentals have
changed. For now, keep CCK in your watchlist.
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Disclosure
The writer does not own shares in this company.
Disclaimer
This analysis is published for your casual and leisurely reading and
is not a recommendation to buy, sell or hold shares and must not be
relied upon as a financial advice. You are encouraged to seek your own
financial advice.
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