CI Holdings Bhd (Nov 16, RM5.23)
Downgrade to neutral at RM5.28 with revised fair value of RM5.59 (from RM5.66): CIH’s 1QFY12 net profit (Permanis Sdn Bhd and DOE Industries Sdn Bhd) sank 37% to RM7.3 million year-on-year (y-o-y). When annualised, this is below our previous full-year forecast (disposal not factored in) of RM41.3 million. The weaker-than-expected results were due to: (i) the increase in sugar price after the subsidy on sugar was removed in January 2011; (ii) higher finance costs due to additional financing for new assets; and (iii) delays in completion of various developers’ projects amid softening demand owing to uncertain global economic conditions and the tightening of property loan regulations to curb speculation. By operation division, continuing operations (DOE + CIH) sales slipped 17.3% and bottom line slipped into a net loss while Permanis’ top line was higher by 7.4% but bottom line was down 33%. DOE sales were impacted by delays in completion of property development projects while Permanis sales got a boost from the Hari Raya Aidilfitri promotion campaign.
Permanis’ gross profit margin dipped two percentage points (pps) y-o-y to 38.1%, largely due to the withdrawal of the sugar subsidy, while DOE’s gross profit margin improved marginally by 0.4 pps to 26.4%. However, Permanis’ operating profit shrank by a larger 3.2% y-o-y to 7.5% on higher operating expenses and lower operating income in addition to higher cost of sales, whereas DOE’s margin dipped 7.6 pps to 2.6% mainly due to the recognition of a foreign exchange gain in the previous year. DOE’s lower profit was also due to the fact that expenses at the holding company level were solely borne by DOE. When normalised, DOE’s 1QFY12 net profit totalled about RM500,000.
While there are numerous acquisition proposals involving various industries on CIH’s table, the company has ruled out industries such as construction, oil and gas, plantation and biotech where technical know-how is required. Management hopes to identify an acquisition target within 12 months. We are cutting our FY12/FY13 earnings forecasts by 18.2% to 23% to RM18.5 million and RM6.1 million respectively to incorporate the weaker results from DOE and Permanis, as well as higher interest income based on management’s timeline guidance. We are downgrading the stock to “neutral” given the less than 10% upside. — OSK Research, Nov 16
This article appeared in The Edge Financial Daily, November 17, 2011.
Downgrade to neutral at RM5.28 with revised fair value of RM5.59 (from RM5.66): CIH’s 1QFY12 net profit (Permanis Sdn Bhd and DOE Industries Sdn Bhd) sank 37% to RM7.3 million year-on-year (y-o-y). When annualised, this is below our previous full-year forecast (disposal not factored in) of RM41.3 million. The weaker-than-expected results were due to: (i) the increase in sugar price after the subsidy on sugar was removed in January 2011; (ii) higher finance costs due to additional financing for new assets; and (iii) delays in completion of various developers’ projects amid softening demand owing to uncertain global economic conditions and the tightening of property loan regulations to curb speculation. By operation division, continuing operations (DOE + CIH) sales slipped 17.3% and bottom line slipped into a net loss while Permanis’ top line was higher by 7.4% but bottom line was down 33%. DOE sales were impacted by delays in completion of property development projects while Permanis sales got a boost from the Hari Raya Aidilfitri promotion campaign.
Permanis’ gross profit margin dipped two percentage points (pps) y-o-y to 38.1%, largely due to the withdrawal of the sugar subsidy, while DOE’s gross profit margin improved marginally by 0.4 pps to 26.4%. However, Permanis’ operating profit shrank by a larger 3.2% y-o-y to 7.5% on higher operating expenses and lower operating income in addition to higher cost of sales, whereas DOE’s margin dipped 7.6 pps to 2.6% mainly due to the recognition of a foreign exchange gain in the previous year. DOE’s lower profit was also due to the fact that expenses at the holding company level were solely borne by DOE. When normalised, DOE’s 1QFY12 net profit totalled about RM500,000.
While there are numerous acquisition proposals involving various industries on CIH’s table, the company has ruled out industries such as construction, oil and gas, plantation and biotech where technical know-how is required. Management hopes to identify an acquisition target within 12 months. We are cutting our FY12/FY13 earnings forecasts by 18.2% to 23% to RM18.5 million and RM6.1 million respectively to incorporate the weaker results from DOE and Permanis, as well as higher interest income based on management’s timeline guidance. We are downgrading the stock to “neutral” given the less than 10% upside. — OSK Research, Nov 16
This article appeared in The Edge Financial Daily, November 17, 2011.
