Below estimates. CLH recorded poor 1HFY12 earnings of RM8m, representing only 27% of our and consensus estimates. The group's YTD revenue fell by 7% y-o-y  to  RM132m while  YTD  earnings  plunged  by  49%  y-o-y RM8m. On a quarterly basis, CLH's PBT of RM5m  was  flat  while  net  profit  plummeted  by  20%  q-o-q  and  60%  y-o-y  to  RM3.4m.  Its O&G logistics continued to be hit by disruptions at its key ship-to-ship bunker fuel services that  cover  the  transfer  and  storage  of  oil  products  for  international  oil  traders.  (Note  that CLH's O&G logistics is the most profitable service which typically fetches lucrative margins to the group). To recap, the  Transport Ministry's Marine Department had ordered CLH to suspend  and  relocate  four  of  its  eight  floating  and  storage units  (FSUs)  in  Pasir  Gudang from  Sept-Nov  2011  in  relation  to  the  development  of  the  RM5bn  deepwater  terminal  by Dialog Group (BUY, FV RM2.99) in Pengerang, Johor. As a result, the group's profitability was impacted negatively since 4QFY11.

Margin  squeeze.  The group's EBIT  and  PBT  margins  dipped  6ppts  and  7ppts  y-o-y respectively  owing  to  the  continued  poor  performance  of  its  high-margin  bunker  fuel services.  The group's haulage business also  continued  to  falter  as  high  fuel  costs  and congestion  at  the  depots  led  to  shrinking  PBT  margins.  We  gather  that  CLH  is  currently working on improving its haulage business through route optimization and outsourcing. We expect the haulage and trucking business to turn positive over the next few quarters as the company adopts a new business approach and ramps up  outsourcing. The same goes to its  O&G  logistics.  We  believe  the  group's earning will eventually pick  up  once  the  group manages to restore and reallocate its FSUs to more strategic locations.

Downgrade  to  SELL.  Given  its  lower-than-expected  earnings  and  as  we  believe  that  its O&G  logistics  is  unlikely  to  be  recover  in  the  near  term,  we  are  slashing  our  bottom-line forecasts  by  28%  and  22%  respectively  for  FY12-13,  and  downgrading  the  stock  to  a SELL from NEUTRAL. Hence, we are trimming our FV from RM1.79 to RM1.46 based on 6x  FY13  PER.  We  may  revisit  our  earnings  forecasts  once the group's O&G logistics.

Source: OSK