CCK ... Sep11

WILSON & YORK Research


RESULTS REPORT
YTD 4Q FY11 revenue grew 11.6% year on year, whilst net profits grew 19.6% over the same period. YTD 4Q FY11 operating margins decreased to 6.5% vs 6.9% over the same period in FY10. Operating margins were reduced by higher feed costs and start up costs of a new subsidiary. Profit growth for FY11 was driven by outlet expansion in the retail sector and higher selling prices for poultry. Poultry accounted for circa 29% of
total external revenue for FY 11, whilst retail sales accounted for about 60% of total external revenue for the same period. Both revenue and margins are growing very nicely in the retail segment.


INVESTMENT RISKS

Risks to our recommendation and target price include: i) further increases in the price of feedstock, ii) increases in interest rates, which would crimp personal spending, and iii) a sharp slowdown in the general level of economic activity in Malaysia. Also, there is the issue of rising food costs which up to now have benefitted food producers like CCK; rises in foodrelated feed stock may begin to crimp margins and growth rates in food demand.


RECOMMENDATION
We maintain our BUY recommendation on CCK with a fair value estimate of MYR 1.08. Value investors will be attracted by the combination of steady earnings growth and consistent profitability at very undemanding
earnings multiples. Looking ahead, average ROE is likely to be maintained comfortably above 13%, whilst P-BV is currently standing on 1.0x trailing book value and 0.8x current year book value.

Compared to many of its peers, CCK has higher net margins and a higher payout ratio. In fact one of the many attractive features of CCK is its respectable current dividend yield of 3.8%. As mentioned above, rising
food prices are pinching consumers in many countries, while additional increases in feed costs would pose a risk. At current prices, however, investors are getting a substantial margin of safety on a lovely business
with solid growth prospects.

COMPANY PROFILE
CCK Consolidated Holdings Berhad (“CCK”) was established on 5 August 1996 as an investment holding company and was listed on 10 December 1997. The company’s major lines of business are poultry,
seafood and wholseale food retailing of the above products and others. CCK operates forty wholesale and retail stores, trading departments and factories throughout Sarawak, Sabah and Peninsular Malaysia.