CCK: Capacity Expansion and Future Prospects Underpin Optimistic Outlook

Despite a recent dip in quarterly earnings, the company remains a strong investment prospect, with analysts maintaining a positive rating on the back of strategic capacity expansion and improving market conditions. The investment bank anticipates significant future growth, particularly from its Indonesian operations, which are poised to triple production capacity, supporting a resilient business model in consumer staple goods.

Performance Review

In the third quarter of fiscal year 2025 (3QFY25), the company’s core PATAMI (Profit After Tax and Minority Interest) experienced a 25% year-on-year decrease, settling at RM17.5 million. This decline was primarily attributed to lower contributions from its poultry and retail segments, alongside an impact from the partial divestment of a stake in its Indonesian operations. However, for the nine months of FY25 (9MFY25), core PATAMI of RM52.8 million was broadly in line with consensus expectations, though slightly below the investment bank’s own forecast, mainly due to weaker-than-expected retail sales.

Revenue for 3QFY25 showed a modest 1.9% year-on-year increase to RM264.5 million, underpinned by robust contributions from both the retail and prawn segments. Indonesian operations also demonstrated strong demand for manufactured processed products. Conversely, the poultry segment faced headwinds, with sales declining 8.7% year-on-year due to lower demand for poultry products and reduced government subsidies. The retail segment’s pre-tax profit margin also compressed by 0.7 percentage points, likely due to lower economies of scale, indicating softer utilization.

Future Outlook and Strategic Growth

Looking ahead, the investment bank forecasts stronger earnings in 4QFY25, driven by anticipated year-end festive spending and the positive impact of higher minimum wage, which is expected to support consumer spending. A key earnings driver for FY26F is expected to be the company’s Indonesian operations, with plans underway to triple existing production capacity to approximately 60,000 metric tons per annum. The new plant is reportedly on track for completion by the end of the current year and is slated for commissioning next year. This significant capacity expansion will enable the company to broaden its distribution channels into new markets, such as Medan and Surabaya.

Further boosting future profitability, lower feed costs for key inputs like corn and soybean, coupled with the appreciation of the Ringgit, are anticipated to lead to an uptick in the company’s profit margins, highlighting potential future cost efficiencies.

Analyst Recommendation

Despite the short-term earnings adjustments, the investment bank has maintained its Outperform call on the company, which translates to a BUY recommendation. This signals continued confidence in the company’s long-term growth trajectory, backed by anticipated capacity expansion, resilient demand for consumer staple goods, and improving cost structures.