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AmInvest Research Reports

Author: AmInvest   |   Latest post: Tue, 7 Jul 2020, 10:00 AM

 

C.I.Holdings - Bracing for Covid-19 and low CPO price impact

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Investment Highlights

  • We maintain our HOLD call, forecasts and FV of RM1.02 for C.I. Holdings (CIH) based on 5x FY21F EPS. This is at a 4x multiple discount to its historical average of 9x to reflect a higher market risk premium as the global economy moves closer to a severe downturn amidst the unabated Covid-19 pandemic.
  • We expect CIH’s 9MFY20 results, due to be announced by the end of the month, to come at RM26–29mil at the net level, which will account for 80–90% of our full-year forecast and full-year consensus estimates. However, we will consider the results only within expectations as we expect a weak 4QFY20 as: (1) the company will face the full brunt of the fallout from the Covid-19 pandemic; and (2) the weakening palm oil prices (Exhibit 1) that historically translated to a margin squeeze for CIH.
  • CPO prices have eased by 22% to RM2,393/tonne by the end of 3QFY20 from RM3,054/tonne during the beginning of the year. We expect CPO prices to stay depressed based on our house view of an average of RM2,300/tonne in 2020.
  • We remain cautious on CIH’s outlook given: i) the inherent volatility in its margins; ii) its inability to significantly grow export sales, which we believe is due to increased competition from other vegetable oils; and iii) a heavy reliance on costlier short-term borrowings (95% of total debt) to fund its operations and a high net debt and gearing of RM174mil and 0.80x respectively as at 31 Dec 2019. On a brighter note, it will continue to grow its revenue via its expansion plans for its edible oil operations and partnerships with property developers for its tap ware and sanitary ware division.

Source: AmInvest Research - 8 May 2020

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