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 ourearnings 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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