CGS-CIMB Research cool on CCK’s purchase of prawn business in Indonesia

by FAYYADH JAAFAR / pic credit:

CGS-CIMB Securities Sdn Bhd (CGS-CIMB Research) is neutral on CCK Consolidated Holdings Bhd’s plan to acquire an integrated prawn business In Indonesia due to concerns over the volatile nature of the business and the fact that it is a related party transaction (RPT).

The Malaysian company last week proposed to acquire PT Bonanza for RM33.8 million from Mitsumoto Corp Ltd, Seven Star Enterprise Sdn Bhd, Harvest Bonanza Sdn Bhd and Miradewi Rosadi.

PT Bonanza is involved in the processing and freezing of shrimp for local and export sales with an operational track record of more than 20 years. It derives 80% of its sales from exports to Japan.

The proposed acquisition is deemed an RPT and requires an EGM as both CCK and PT Bonanza have common major shareholders.

Subject to CCK obtaining all relevant approvals, the proposed acquisition will be completed in the second half of this year.

“On the positive side, we believe the acquisition can be earnings accretive while we are aware of the synergies between PT Bonanza and CCK. CCK has Indonesia operations and has a prawn segment for the rearing and production of prawn and seafood products in Malaysia, 3.3% of the financial year 2021 (FY21) revenue. On the flip side, we are concerned about the earnings volatility of PT Bonanza’s business and the fact that it is an RPT, CGS-CIMB analyst Walter Aw wrote in a report last week.

He reiterates his ‘Add’ call on CCK while deferring the impact on its earnings.

The broker noted, assuming PT Bonanza can achieve a similar net profit to FY20 in FY22-FY24F, this could lift CCK’s FY22-FY24F earnings per share (EPS) by 5.6%-10.2%.

“Nevertheless, we make no changes to our FY22-FY24F EPS estimates pending further details (operational details such as capacity and selling prices) and CCK obtaining approval from an EGM.

“We keep our ‘Add’ call and TP of 0.76 sen (13 times calendar year 2023F [CY23F] P/E, in line with its five-year historical mean). Current valuations are attractive at 9.7 times CY23F P/E, a 25.4% discount to its five-year mean,” Aw stated.

CCK shares closed half a sen higher at 57 sen last Friday, which gives it a market capitalisation of RM355 million.