KUALA LUMPUR: Integrated poultry producer CAB Cakaran Corp Bhd expects to see a further growth of at least 20% in its current year’s revenue after reporting a record high turnover of RM1.1 billion in the previous year.
This follows the rise in its broiler output capacity, which surpassed six million birds a month from five million in the financial year ended Sept 30, 2016 (FY16), said managing director Christopher Chuah.
“The revenue momentum will continue from last year. I think in comparison with FY16, it will easily be another 20% increase,” Chuah told The Edge Financial Daily.
CAB’s first-quarter results for FY17 saw a 37.8% growth in revenue to RM349.5 million from RM253.7 million a year earlier. The group achieved a net profit of RM7.73 million for the quarter against a loss of RM4.54 million in the previous corresponding quarter.
According to Chuah, the first quarter has generally been a weaker quarter for the group. But the strong growth recorded this time around is a sign of a continued momentum from its record revenue in FY16.
CAB made news last year when it acquired Farm’s Best Food Industries Sdn Bhd (FBF) from Farm’s Best Bhd.
FBF, which is now a 53.04%-owned subsidiary of CAB, is in the process of acquiring certain assets of Sinmah Breeders Sdn Bhd from Farm’s Best.
Chuah said CAB’s production capacity will rise further to between seven and 7.5 million birds per month upon completion of the Sinmah acquisition.
Along with the rise in production capacity, CAB is also set to achieve a bigger market share. According to a research report by DBS Equity Research, CAB controlled about 16% of the market share in Malaysia in FY15.
The group’s estimated broiler production in FY15 was about 50 million birds. If CAB could boost the capacity to seven million birds a month, its annual production for FY17 could hit 84 million birds.
The growth story does not end there. The long-term outlook for CAB looks even more exciting as it sets to benefit from its joint venture (JV) with Indonesia’s Salim Group.
CAB signed a memorandum of understanding with KMP Pte Ltd, a unit of Salim Group, to form a JV company last year.
The JV targets to have a production capacity of about five million birds per month in three years to be used internally by Salim Group for the production of processed food.
CAB will have a 10% stake in the JV, with the option of increasing it to 30%. The JV has a revenue target of RM1 billion per annum after five years.
Chuah said CAB is currently awaiting approval from Indonesian authorities, which is expected to be completed within three months.
“We are targeting to start building the farm by the middle of this year once the approval has been obtained, and we could see the contribution kick in by the end of 2018,” he said.
Salim Group has a large presence in Indonesia with more than 11,000 Indomaret convenient stores and operates more than 500 Kentucky Fried Chicken (KFC) outlets, allowing possible collaborations to include supply of poultry to the KFC outlets and sales of value-added frozen food at the convenience store chain, the DBS Equity Research report said.
While the growth story for CAB remains intact, the stock remains undervalued and overlooked by most investors. Last Friday, the trading volume of CAB Cakaran was only about 23,200 shares compared with its 200-day average volume of about 122,000. While the share price has risen by 7.8% year-to-date, the counter is still 2.4% lower than its value a year ago.
At the current level, the stock is trading at a trailing price-earnings ratio of about 7.5 times compared with its peers that are in the high teens. It could be too early to assume that the growth momentum for CAB will continue, but the optimism shown by management, its latest financial results as well as its future plans could set the stage for the group’s next phase of growth.