Results

• C.I. Holdings Berhad (CIH) posted a PATAMI of RM5.5m in 4QFY18 which surged 53% qoq but down 16.8% yoy. Better performance for QoQ was mainly buoyed by lower tax expense. In contrast, insipid YoY performance was bogged down by Edible oil products segment.

• 12MFY18’s PATAMI improved 15% yoy on the back of better performance in Tap-ware and sanitary ware segment coupled with tax incentive despite a lacklustre performance in Edible Oil products.

• Within expectation. CIH’s 12MFY18 PATAMI meets 103% of our full year earnings forecast.

Comments

• Edible oil products segment’s 4QFY18 PBT up 5.1% qoq due to uptick in margin. Revenue down 4% qoq as a result of lower FCL shipments in view of higher import duty on CPO and refined palm oil. However, PBT improved 5.1% qoq on the back of better margin. Nevertheless, it was moderated by higher freight costs to Africa.

• YoY performance eroded by lower revenue that further compounded with lower margin. Revenue down 8.9% yoy was attributed to decrease in total FCL shipments and average olein price. Meanwhile, PBT tumbled 39.35% yoy given lower margin due to the strengthening of Ringgit Malaysia.

• Cumulatively, Edible oil products segment’s 12MFY18 PBT down 13.1%. Revenue increased 31.9% yoy, mainly buoyed by higher sales volume. Nevertheless, higher revenue failed to translate into a higher PBT growth no thanks to lower gross margin as affected by strengthening of Ringgit Malaysia.

• Proposed a final single-tier dividend of 10 sen per share. Dividend proposed translates into a dividend yield of 5.58% based on current share price of RM1.79.

Earnings Outlook/Revision

• We slash our earnings forecast for FY19 by 16.5% after taking into account the contraction of margin. Meanwhile, we introduce our earnings forecast for FY20, which renders a growth of 5% yoy.

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

Valuation/Recommendation

• We downgrade the stock to HOLD from BUY with a lower target price of RM1.86 (previously was RM2.36) following our earnings cut. We ascribe a PER of 10.5x FY2019F EPS. Our valuation is at -1SD below its trailing mean PE as the stock is lack of trading liquidity.

Source: JF Apex Securities Research - 23 Aug 2018