This article first appeared in The Edge Financial Daily on December 18, 2017

KUALA LUMPUR: After chalking up a record high revenue for the financial year ended Sept 30, 2017 (FY17), CAB Cakaran Corp Bhd is confident about posting an even higher top line in FY18 thanks to its expanded capacity.

The poultry supplier’s managing director (MD), Christopher Chuah, expects the FY18 revenue to be about 7% higher than the RM1.6 billion reported in FY17.

“Our revenue for the fourth quarter of financial year 2017 was already RM411.2 million, and broiler meat demand is inelastic to economic conditions, so if we could maintain that for FY18, that would be more than RM1.6 billion already,” Chuah told The Edge Financial Daily.

The group’s bottom line, however, remains dependent on average selling price next year.

“Our performance usually depends on the average price,” said Chuah. “For example, the average price so far this year was higher than last year, so our performance improved. But next year … it all depends on the supply and demand for broiler.”

For FY17, CAB’s unaudited net profit more than doubled to RM58.18 million from RM26 million in FY16, while revenue grew 35.5% to RM1.49 billion from RM1.1 billion.

Apart from the average selling price of broilers, Chuah said the group’s capacity also plays a role in its financial performance.

CAB’s current capacity for broiler meat is seven million birds a month (for day-old chick it is nine million birds a month), which is about 12% of Peninsular Malaysia and Singapore’s total market share of 60 million birds per month.

This market accounted for 99.52% of CAB’s total revenue in FY17.

“Over the past few years, the market was growing at about 2.5% to 3% per annum; we are expecting the same next year,” he said.

Next year, Chuah said the group intends to increase broiler meat capacity to about 7.5 million birds per month, and up to 11 million birds a month for day-old chick.

“We will not expand for the sake of expanding. For the broiler business, expansion is not an issue as long as we got the money and the land. But the key question is whether the demand is there,” he said.

Chuah said CAB has budgeted a sum of about RM50 million as capital expenditure for FY18, to upgrade the group’s facilities and machinery.

“These upgrades are meant to cater for additional market demand. If we want to grow on a larger scale, we will have to look into the existing market, so we are also on the lookout to buy medium or smaller broiler businesses, especially those businesses that have no second generation successors,” he said.

On CAB’s collaboration with Salim Group chief executive officer Anthoni Salim, Chuah said the construction of their joint venture broiler and layer farms in Indonesia will start next year.

“The construction will take about 12 months to complete and contribution will likely begin in 2019. We are targeting 4.5 million birds per month for the broiler and three million eggs per day for the layer in 2019,” he said.

“We currently hold 10% of the joint venture, and over the next five years, we have an option to increase our stake to 30% based on the inception price. In that way we don’t have to incur so much expenditure now,” he explained, adding that the capital investment for the ventures has not been finalised yet.

Salim Group has a large presence in Indonesia with more than 11,000 Indomaret convenience stores and operates more than 500 Kentucky Fried Chicken outlets.

Chuah said CAB is not involved in any other acquisition deal at present.

The stock has to date doubled from 49 sen on Dec 30 last year.