Investment Highlights

• We maintain our forecasts but reduce our FV by 27% to RM1.02 based on 5x FY21F EPS (from RM1.40 based on 7x FY20F EPS previously). The multiple cut is to reflect a higher market risk premium as the global economy moves closer to a severe downturn amidst the unabated Covid-19 pandemic. Maintain HOLD.

• We believe the operations of C.I. Holdings (CIH), i.e. manufacturing edible oils, have been “business as usual” in recent weeks despite the movement control order (MCO) (to curb the spread of Covid-19) as they fall under the “food supply sector and its chain of essential services”.

• We understand that the company’s sales have remained “normal” up to the latest available numbers, i.e. Feb 2020. This is not surprising given that exports typically make up 90% of total sales, out of which 70% go to Africa. Thus far, the African continent is one of the least affected by the Covid-19 pandemic. In any case, being an essential item, we believe the demand for edibles should remain steady even during a pandemic.

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

• We remain cautious on CIH’s outlook givenp: i) the inherent volatility in its margins; ii) its inability to significantly grow export sales, which we believe is due to increased competition from other vegetable oils; and iii) a heavy reliance on costlier short-term borrowings (95% of total debt) to fund its operations and a high net debt and gearing of RM174mil and 0.80x respectively as at 31 Dec 2019.

Source: AmInvest Research - 25 Mar 2020