Results

• C.I. Holdings Berhad (CIH) posted a PATAMI of RM5.5m in 1QFY18 which was flat qoq, +0.1% but tumbled 50.3% yoy.

• Slightly better QoQ performance was buoyed by improved performance under Edible Oil Products segment amid higher tax expenses.

• Meanwhile, unfavourable YoY performance was bogged down by Edible oil products segment.

• Below expectation. CIH’s 3MFY18 PATAMI only meets 19.7% of our full year earnings forecast given lower selling prices.

Comments

• Edible oil products segment’s QoQ performance lifted by better margin and sales volume. PBT was up 23.8% qoq to RM9.8m in 1QFY19, underpinned by higher revenue of RM610.5m with growth of 3.8% qoq. Higher revenue was a result of increment in total FCL shipments sold that mitigated by 10% drop in average olein prices. Meanwhile better margin was due to slightly improvement in gross profit margins and lower net unrealized foreign exchange losses.

• YoY performance eroded by lower sales volume that further compounded with lower margin. Revenue was down 16.4% yoy, attributed to 5% decline in total FCL shipments sold and a 16% drop in average olein price. As such, PBT tumbled 50.3% yoy. The lacklustre performance was bogged down by lower gross margin, higher net unrealized foreign exchange losses and a provision for doubtful debts as to comply with the new MFRS 9.

Earnings Outlook/Revision

• We tweak down our earnings forecasts for FY19 by 12.6% to account for softening selling prices while retain our earnings forecasts for FY20.

• 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

• Maintained HOLD with a lower target price of RM1.70 (previously was RM1.86) 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 - 29 Nov 2018