Investment Highlights

• We raise our FY20F–FY21F earnings forecasts by 67%, 36% and 33%, upgrade our FV by 4% to RM1.35 (from RM1.30) based on 7x FY20F EPS (revised down from 9x previously to reflect the increased competition in the edible oil market and the company’s inability to effectively differentiate its products). Maintain HOLD.

• C.I. Holdings’ (CIH) 1QFY20 core net profit beat expectations, coming in at 46% of our full-year forecast and the full-year consensus estimates. We believe the variance against our forecast came mainly from betterthan-expected refining margins realised.

• CIH’s 1QFY20 net profit jumped 58% YoY thanks to margin expansion, we believe, arising from better cost control and efficiency, coupled with increased direct sales (that fetch better margins) with contribution to total sales increasing to 63% from 48% previously.

• Moving forward, the group will continue to increase revenue via its expansion plans for its edible oil operations and partnerships with property developers for its tapware and sanitary ware division.

• We reiterate that CIH is currently facing multiple challenges ahead, such as: i) volatility in margins; ii) Inability to grow export sales, which we believe was due to increased competition from other vegetable oils; and iii) heavy reliance in short-term borrowings which make up 94% of the group's borrowings with a net debt position of RM138mil. Maintain HOLD.

Source: AmInvest Research - 29 Nov 2019