Results

• C.I. Holdings Berhad (CIH) posted a PATAMI of RM11m in 1QFY18 which soared 67.4% qoq and more than doubled on yoy. The stellar performance was mainly attributed to higher sales volume coupled with better margin achieved.

• Within expectation. CIH’s 3MFY18 PATAMI within our forecast by matching 27% of our full year earnings.

Comments

• Edible oil products segment continued its growth with higher demand as well as better selling price. Revenue for Edible Oil products (EDP) increased 13% qoq 1QFY18 given higher shipments of full container loads (FCL) underpinned by strong demand. Meanwhile, PBT surged 52% yoy, back by better margin (+0.66 pts to 2.54%) as a result of better selling prices. Meanwhile, tap ware and sanitary ware segment also recorded narrowed losses of RM0.1m in 1QFY18 as compared to RM0.7m losses in 4QFY17.
• Stellar performance in Edible Oil Products segment on a yearly basis, thanks to higher shipments of full container loads (+82% yoy). As such, revenue and PBT for Edible Oil products (EDP) increased 109% yoy and 115% yoy respectively. Nevertheless, PBT margin improved 0.3pts to 2.54% given better selling prices.

Earnings Outlook/Revision

• No change to our earnings forecasts for FY18 and FY19.

• Major risks are: 1.) Volatility in palm oil prices; 2.) Rely heavily on ST borrowings for its working capital; 3.) Thin margin and hinge on management expertise to manage its costs efficiently.

Valuation/Recommendation

• We maintain our BUY call with an unchanged target price of RM2.61, based on 10.4x FY2018F PER. Our valuation is pegged at -2SD below its trailing mean PE. The assigned PER also tracks its closest comparable peer, YEE LEE Corporation’s forward PE.

• Overall, we are positive with the growth of the company which are underpinned by strong demand in overseas markets especially in Africa. Despite current high net gearing, we see it as a nature of the business model to rely on short-term borrowings to support the topline growth and it shall trend down from 1.3x in FY17F to 0.8x in FY18F in tandem with the rising bottom line and cash level. In addition, we see no problem for the Group to fulfil its short-term debt obligations with minimal payment risk as export proceeds are mainly in letter of credit (LC) and document against payment (DP).

Source: JF Apex Securities Research - 23 Nov 2017