CCK (7035) - Rooster Year to start with a Roast, But a Toast to CCK
In the coming weeks of January 2017 will be seeing the Chinese people around the world welcoming the Year of The Rooster. But, please do not consult me on astrology pertaining to the Rooster Year, because I only know how to eat a nice chicken meal at Kenny Rogers or Nandos.
This time around, although it suppose to be the year of the rooster, it seems to me that rooster in some parts of the world are being roasted for the wrong reason this year. By now, I assume that you must be thinking in your mind - What wrong can a chicken do to have them being roasted for the wrong reason ?
Well,
if you had been following the international news during the year end
holidays, you would notice that Japan and South Korea are roasting up
more and more poultry in order to contain the worst ever bird flu
epidemic which started at the end quarter of 2016.We heard about the deadly bird flu of H1N1 that had took lives of human due to respiratory complication back then. Now, the outbreak is of the highly pathogenic H5N6, which is more severe than the H5N8 in 2014 and 2015.
Entering January 2017, South Korea had took precautionary steps to control and eliminate the outbreak, culling more than 30 million of poultry.
Some report mention that the figure accounted for more than 15% of the poultry livestock in South Korea. To make it worst, Japan had too reported of bird flu and had started to cull poultry in order to contain the outbreak.
So, by now, can you imagine the magnitude of 30 million poultry ? To put it in some simple figure, 30 million of chicken is able to feed 800,000 adult, each of them consuming 1 chicken a day, for 365 days. Wow, now that is a lot right?
For more reference on bird flu in South Korea and Japan, here is some link I can provide to you.
1. Al-Jazeera
2. Huffington Post
3. Reuters
4. Bangkok Post
According to Bangkok Post, it was mentioned that the Ministry of Agriculture, Food and Rural Affairs regarded this event as the worst outbreak in South Korea, doubling what had happened in 2014 where only 14 million of poultry are destroyed.
The massive culling of poultry had send prices of eggs soaring as much as 30%. Coupling to winter holiday, Christmas season as well as the upcoming Chinese New Year, the supply might not be able to match the soaring demand. So, this is very natural to see more imports of frozen meats as well as eggs.
For this reason, I had ran a check on all the company dealing with poultry in KLSE, and found out that CCK Consolidated Holdings Berhad (CCK - 7035) did involve in exporting their goods to country such as Japan and Korea.
So in order to check if CCK does have positive correlation towards the bird flu event in 2014, I had go through a simple check, and to my amaze, you have to see it yourself.
That is 25% up in a short time frame.
So, while 2014 is a "past tense", we need to look into the present now and determine our action to anticipate the future, only then it will be meaningful, right?
So now, looking at the price now, we can see that CCK is indeed in a uptrend momentum. Since this time around is double the damage (in terms of culling of poultry), let's say we can look for a 35% increase from the starting price of RM 0.60, which means potential of going into RM 0.80.
But, if we are to buy based on this kind of news, sounds more towards speculating right? So, is there any fundamental to back up?
Let's run a simple fundamental outlook of the company then.
Since food is an essential thing for human being, and with the increasing population, food will continue to grow in demand. Take the latest quarterly result, the adjusted earning per share is approximately 2.05 cents (Adjusted for Bonus Issue). Since this is defensive in nature, we can annualize it to 8.2 cents for 4 rolling quarter, valuing RM 0.82 at PER x10.
Well, now this is not so bad.
Since this company also had a history of paying dividend as well (2 cents in 2015, 3 cents in 2016), we would expect a coming dividend to be approved in May later this year, probably 3 to 3.5 cents. This alone also represent more than 4% in dividend at the current price.
Now, it is decision time for you and CCK and the chicken as well. You can continue to grill your chicken meat, or grill it with CCK. But as for the chicken, fate is the same for them. With or without bird flu, they are still going to get grilled.
Bone's TP : RM 0.80
CCK (7035) - Rooster Year to start with a Roast, But a Toast to CCK
http://bonescythe.blogspot.my/2017/01/rooster-year-to-start-with-roast-but.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+BonescytheStockWatch+(Bonescythe+Stock+Watch)
