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.
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