(CIH) – which packages edible oils and makes sanitary ware products – as it maintains its Hold call, forecasts and fair value of RM1.02.It said on Friday CIH faced inherent volatility in its margins and also its inability to significantly grow export sales, which is due to increased competition from other vegetable oils.
“There is 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 0.80 times respectively as at Dec 31, 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,” it said.
AmInvest Research said its fair value of RM1.02 for CIH was based on five times FY21F EPS which was at a four times multiple discount to its historical average of nine times.
It said this is 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% to 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 that historically translated to a margin squeeze for CIH,” it said.
AmInvest Research said CPO prices have fallen by 22% to RM2,393 per tonne by the end of 3QFY20 from RM3,054 a tonne during the beginning of the year.
It expects CPO prices to stay depressed based on its house view of an average of RM2,300 a tonne in 2020.