CI Holdings Bhd
(April 22, RM2.90)
Maintain buy at RM2.94 with target price of RM4.78: Sugar was the main topic of discussion at last week's post-3QFY6/11 briefing. CIH has no plans to raise selling prices yet even though it is now paying a market price of around RM2.62/kg for sugar, 38% higher than the last subsidised price of RM1.90/kg. Other highlights are i) a continued rise in sales of non-carbonated drinks, and ii) improvement of infrastructure through a new PET line.

Our EPS forecasts are intact, which, together with an unchanged valuation basis of parity with our 14.5 times CY12 target market P/E, keeps our target price at RM4.78. We continue to rate CIH a 'buy' and our top F&B pick given the potential catalysts of i) an increasingly marketable product line, and ii) M&A.

Thanks to its recent price weakness, the stock is now an attractive investment proposition, offering single-digit FY12-13 P/Es and 4.1% dividend yield.

In 3Q11, sugar accounted for 20% of the cost of goods sold, up from 15% in 3Q10. Despite the cost pressure, CIH has not raised the selling prices of its drinks, not even for the juices under the Tropicana brand, which is the market leader. Instead, the company has opted to control selectively its price discounting and trade promotions. Depending on products and sales channels, CIH's price discounts can be as much as 7%.

CIH's top three bestselling brands are Twister, Pepsi and Mirinda. The introduction of Tropicana Twister in March 2008 has taken non-carbonated drinks from 20% of CIH's beverage sales a few years ago to 43% in 3Q11. CIH is aiming for a 50:50 sales split between carbonated and noncarbonated in the next few years.

After investing RM45 million on a new production line and RM29.5 million on a new warehouse in FY11, CIH plans to spend around RM20 million-25 million on a new line that can produce 600-litre PET bottles next year.

The company is also looking to expand its retail coverage to 45,000 outlets and roll out 19,000 chillers by end-FY11. ' CIMB Research, April 22


This article appeared in The Edge Financial Daily, April 25, 2011.