Results

• C.I. Holdings Berhad (CIH) posted a PATAMI of RM3.6m in 2QFY18 which slid 33.5% qoq and 67.4% yoy.

• Both QoQ and YoY performances were weighed down by lower olein prices.

• Below expectation. CIH’s 6MFY18 PATAMI only meets 38% of our full year earnings forecast given lower selling prices.

Comments

• Edible oil products segment’s QoQ performance dragged by lower margin in view of weaker olein selling price. PBT was down 27.2% despite with flat revenue growth of 0.1% yoy, no thanks to lower olein selling price. Meanwhile lower margin also fazed by higher unrealized and realized losses on forex, higher unrealized losses on derivatives and additional provision on trade receivables impairment.

• YoY performance eroded by lower margin. Revenue was down 4% yoy despite Full Container loads increased close to 8% given 23% drop in olein prices. Meanwhile, lower selling price had put downward pressure towards gross profit margin, which saw a decrease of 1.37 pts to 4.12% from 5.48%. As such, PBT tumbled 43.5% yoy.

• On the same note, 6MFY19’s PBT slumped 47.7% in view of lower selling price. Meanwhile, revenue decreased 10.6% yoy to RM1.24b.

Earnings Outlook/Revision

• We tweak down our earnings forecast for FY19 and FY20 by 21-23% to account for soft selling price.

• 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

• Maintain HOLD with a lower target price of RM1.49 (previously was RM1.70) following our earnings cut. We roll over our valuation to FY20F and peg at 10.5x PER. Our valuation is at -1SD below its trailing mean PE as the stock is lack of trading liquidity and the Group now faces lower selling price.

Source: JF Apex Securities Research - 28 Feb 2019