This article first appeared in The Edge Malaysia Weekly on August 21, 2023 - August 27, 2023

AFTER years of delay due to the Covid-19 pandemic, CAB Cakaran Corp Bhd and its second largest shareholder, Indonesia’s biggest conglomerate Salim Group, are finally making headway on their collaboration to build an integrated poultry business near Jakarta, Indonesia.

CAB group managing director Christopher Chuah Hoon Phong reveals that unlike the group’s operation in Malaysia, which focuses mainly on broilers, its new poultry farm on Java Island will also include layers and eggs operations.

“We are working closely with Salim Group to commence plans that were already in place prior to Covid-19 to set up an integrated poultry operation in Indonesia. If everything goes well, we hope to start operations this year,” he tells The Edge in an interview.

Excluding the cost of the land, which is owned by Salim Group, the joint venture’s (JV) initial investment to kick-start the project is estimated at RM100 million.

“Initially, CAB will own 10% equity interest in the Indonesian JV entity, and we have the option to raise our stake to 30% in the company later on. In other words, we only need to invest RM10 million at the moment,” says Chuah.

He believes the collaboration is a win-win alliance, with Salim Group benefiting from CAB’s technical expertise to drive the poultry business in Indonesia, while allowing CAB the opportunity to expand into the market there.

Chuah recalls that over the past few years, CAB had been conducting market surveys and sorting out the required licences for its Indonesia venture. “We were ready to start our project, but the pandemic came and put a halt to our plans.”

Salim Group owns 15.2% equity interest in CAB through Plant Wealth Holdings Ltd. The Indonesian conglomerate is engaged in businesses spanning various industries, including food and agribusiness, finance, retail, telecommunications, automotive and real estate. It owns four public-listed companies in Indonesia, France and Hong Kong, with a combined market capitalisation of over US$15 billion (RM69 billion).

“Salim Group owns IndoFood (the Indonesian food giant that produces Indomie instant noodles), Indomaret (retail convenience store chain operator), as well as hotel and restaurant businesses, but they don’t have poultry operations.

“Our joint poultry operations ensure a reliable customer base from Salim Group’s various enterprises, while also securing a steady supply of poultry for them,” Chuah says.

He expects the Indonesia venture with Salim Group to be the next new growth area for CAB in the near term. “Obviously, Indonesia has a huge population, while its poultry consumption is on the rise. More importantly, the government does not allow poultry imports, so this gives us an opportunity to tie up with Salim Group to serve the local market there.”

Penang-based CAB is one of the largest integrated poultry companies in Malaysia. With more than 100 broiler farms on the peninsula — either company-owned or contracted farms — the group supplies 10% to 12% of the market’s broiler and livestock needs in Malaysia.

Now, its big plan is to capitalise on the opportunities in Indonesia, one of the world’s most populous countries with a population of 270 million, which is about eight times Malaysia’s.

According to Chuah, chicken is a major source of animal protein in Indonesia as Muslims, who do not eat pork, make up almost 90% of the population. Beef, goat meat and mutton and dairy products are too expensive for many locals.

He also points out that while the downstream sector of the poultry industry, such as processing and sales, is comparatively well developed in Indonesia, the upstream poultry production process requires modernisation of various aspects, including keeping, feeding, medical care, transport, slaughter, cooling and storage.

“Many farms in Indonesia are inefficient and rely on workers who are accustomed to traditional poultry rearing methods with little scientific basis in operations. About 75% of the total Indonesian poultry production is slaughtered manually at small-scale slaughter locations. Generally, these slaughterhouses do not have chilling facilities,” says Chuah.

CAB aims to fill in the gaps in upstream poultry operations in Indonesia by emulating its Malaysian upstream and downstream operations, given that the group has the technical know-how at every level of poultry production.

Chuah was appointed to the board of CAB in May 2007, before being promoted to his current position in February 2011. The 44-year-old has over two decades of experience in the integrated poultry industry, following in the footsteps of his father Chuah Ah Bee, who is the founding executive chairman of CAB.

Ah Bee is the single largest shareholder of CAB with a 28.21% stake. His wife Chan Kim Keow, who is a former CAB executive director, has a 13.85% stake.

In December 2015, CAB signed a memorandum of understanding with KMP Private Ltd — Salim Group’s investment holding arm for companies involved in food, agribusiness, distribution and retail of fast-moving consumer goods — with the intention to form a JV to establish a fully integrated poultry business in Indonesia.

About a month later, KMP subsidiary Plant Wealth signed a private placement agreement to subscribe for 15.1 million shares or a 9.1% stake in CAB.

Subsequently, in November 2017, CAB entered into a JV with Ternak Ayam Terpadu (TAT) to combine resources and expertise to produce halal poultry-based products for the Indonesian market. TAT’s major shareholder is Chinese-Indonesian tycoon Anthoni Salim — also known as Liem Hong Sien — the CEO of Salim Group.

Fast forward to January this year, it was announced that CAB is planning a re-entry into Indonesia through a JV with Salim Group by collaboratively investing between US$50 million and US$80 million over the next five years.

Chuah expects the development of the next few phases to be funded via the Indonesian business’ internal funds. “Phase 1, whose capacity consists of 4.5 million birds per month; five million day-old chicks per month; and three million eggs per day, is expected to undergo a gestation period before breaking even about three to four years into operations.”

Year to date, shares of Main Market-listed CAB have gained 82% to settle at 67.5 sen apiece last Thursday, giving it a market capitalisation of RM473.78 million. The counter is currently trading at a trailing 12-month price-earnings ratio of 4.59 times. In comparison, the industry’s average PER is about 10.1 times.

CAB group executive director Chew Chee Khong highlights that one of the possible reasons for its shares not being valued higher is that the company’s bottom line, despite growing steadily, did not meet certain investors’ high expectations of strong earnings growth. “Our profit margins are not as high as our peers. Having said that, their bottom line is also supported by non-poultry and downstream poultry operations that fetch higher margins.”

To be in line with the industry average, CAB needs to wait for a rerating when its collaboration with Salim Group takes off. The undemanding valuation against its peers, however, presents upside potential for CAB, says Chew, 66, who is one of the founding members of Kyros Kebab fast food chain. 

Apart from the bread-and-butter integrated poultry business — covering most upstream activities except layers, eggs and feed meal operations — CAB also owns Kyros Kebab, which is operating under owner-own and franchise models.

Meanwhile, the group also operates medium-sized supermarkets, namely Pasaraya Jaya Gading and Home Mart Fresh & Frozen, which are located in the second-liner cities.

“This enables us to create a direct sales channel for our poultry products. Moreover, by selling our own brand in supermarkets, we can strengthen brand recognition and loyalty among consumers,” says Chew.

CAB’s poultry business, which contributes about 90% of total revenue and 95% of its total operating profit, is one of the four licensed breeders for grandparent stock (GPS), and is among the 30-odd licensed breeders for parent stock (PS).

CAB has one breeder farm for GPS in Kedah; five breeder farms for PS, one each in Kedah, Penang, Negeri Sembilan, Melaka and Johor; and one breeder farm for black chicken and colour birds (native chicken) PS in Johor. It also has six slaughtering and processing plants, one each in Singapore, Kedah, Kuala Lumpur, Pahang, Melaka and Johor.

CAB acquired a controlling stake in Farm’s Best Food Industries Sdn Bhd in 2016. Today, the group owns a 55% stake in Farm’s Best, Salim Group a 40% stake, while another investor holds the remaining 5%.

Following the acquisition of Farm’s Best, CAB’s total slaughtering production capacity increased by 36,000 birds per day, to about 110,000 birds per day.

Driven by a good product mix, effective cost control and increase in capacity, CAB returned to the black with a net profit of RM57.7 million in the financial year ended Sept 30, 2022 (FY2022), compared to a net loss of RM20.2 million in FY2021.

In 1HFY2023, the group reported a net profit of RM70.4 million, exceeding its net profit for the full-year FY2022.

Chew says poultry is a resilient industry, as chickens are the most basic protein source in Malaysia, hence, demand for poultry products is inelastic despite the changing economic conditions. “We will continue to grow in tandem with the increase in demand for poultry-related products. We have been adding capacity in the past years to avoid a shortage in demand.”

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.