Results

• C.I. Holdings Berhad (CIH) posted a PATAMI of RM6.6m in 4QFY17 which slid 18.1% qoq but surged 70.5% yoy. The lacklustre qoq performance was mainly attributed to lower margin despite higher sales volume given reduced shipments to high margin markets.

• Below expectation. CIH’s FY17 PATAMI below our forecast by matching 91% of our full year earnings estimate due to lower-than-expected margin.

Comments

• Shipments of full container loads (FCL) increased 20% qoq but Edible Oil Products’ PBT dropped 21.3% qoq. Revenue for Edible Oil products (EDP) increased 12.3% to RM645.3m in 4QFY17 despite much stronger shipment volume, up 20%, as selling price was tapered by lower palm olein price in US dollar. Nevertheless, improvement in revenue was whittled by lower margin with EDP’s PBT fell 21.3% to RM13.4m in 4QFY17 from RM17.1m in 3QFY17 as a result of reduced shipments to high margin markets. Besides that, PBT also bogged down by lower forex gains in 4QFY17 as compared to 3QFY17.

• Similarly, CIH 4QFY17 revenue surged 79% yoy, underpinned by higher shipments of FCL and the weakening of Ringgit Malaysia. But, again, PBT merely up 20%. PBT margin was eroded by lesser shipments to high margin markets and higher realised forex losses compared to 4QFY16. Overall, 4QFY17 PBT improved to RM12.3m from RM10.3m in 4QFY16.

• FY17 PATAMI inched up 1.9% to RM27.1m despite revenue soared by 66.6% yoy. The catapulted revenue was mainly driven by the growth of EDP division (+69.3% yoy) to RM2139m from RM1264m in FY16. However, PBT margin was squeezed to 2.3% from 4% (- 1.67pts yoy). We believe the lower margin was partly due to its expansion plans for market shares. Also, the performance was dragged down by a loss of RM1.5m in Tap-ware and sanitary ware segment.

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 - 24 Aug 2017