CAB restarts Indonesian tie-up with Salim Group

George Town: CAB Cakaran Bhd will restart its integrated poultry business in Indonesia with the Salim Group after the Chinese New Year in February, with a business plan to invest substantially into the project over the next five years.

Group managing director Chris Chuah told StarBiz that it was now working to finalise the investment sum for the project.

CAB and its partners stalled the project’s implementation three years ago because of the global pandemic outbreak.

“We will invest an initial RM100mil to start the project, which includes layers and egg operations on Java Island.

“The integrated poultry business prospects in Indonesia are good because 90% of the population is Muslim.

“Beef and mutton and dairy products are too expensive for the locals.

“The Indonesian government forbids poultry imports, giving us ample opportunities to serve the local market,” Chuah said.

Phase one of the project has the capacity for 4.5 million birds per month, five million day-old chickens daily, and three million eggs daily.

“The first phase requires a three to four-year gestation period before breaking even. Internally generated funds will fund the project,” he said.

According to Chuah, the current poultry farms are inefficiently operated, employing traditional breeding methods.

“Chickens are not kept at an optimum temperature and are irregularly fed, depending on workers’ availability and mood. Some 75% of the chickens are slaughtered in small-scale sites without proper chilling facilities,” he said.

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

In December 2015, CAB signed a memorandum of understanding with Salim Group to establish a fully integrated poultry business in Indonesia.

In November 2017, CAB entered into a joint-venture (JV) agreement with Ternak Adam Terpadu (TAT) to combine resources and expertise to produce halal poultry-based products for the Indonesian market. The Salim Group is a significant stakeholder in TAT.

“Initially, CAB will own 10% equity interest in the Indonesian JV entity, and we can raise our stake to 30% in the company later. In other words, we only need to invest RM10mil now,” 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 to expand into the market there.

Salim Group owns a 15.2% equity interest in CAB through Plant Wealth Holdings Ltd.

The Indonesian conglomerate is engaged in various businesses, 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$15bil (RM69bil).

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, Negri 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 also owns a 55% stake in Farm’s Best Food Industries Sdn Bhd, where it acquired the stake in 2016.

Salim Group has a 40% stake, while another investor holds the remaining 5%.

With Farm’s Best facilities, CAB’s total slaughtering production capacity increased by 36,000 birds per day to about 110,000 birds per day.

CAB also owns Kyros Kebab, which operates under owner-owned and franchise models.

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

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

For the financial year ended Sept 30, 2023, CAB posted a jump in its net profit to RM107.25mil from RM57.52mil in the previous year, while revenue surged to RM2.25bil from RM1.95bil.

Moving forward, the company is optimistic on its outlook as the price of feed, which has been trending downwards over the past few months, eases the pressure on the high cost of production experienced previously.

“This has encouraged the production of more broilers, resulting in adequate supply of chicken in the market.

“With the removal of subsidies and retail ceiling price for chicken, the poultry companies will have more flexibility to adjust the selling price based on supply and demand dynamics.

“The current adequate supply of chicken in the market has resulted in lower selling price of broiler and this trend is expected to continue into the next quarter.

“However, with the price of feed trending downward as well, the management is confident of maintaining a reasonable profit margin,” it said in its fourth-quarter of financial year 2023 results notes.