Stock Name: CIHLDG
Company Name: C.I. HOLDINGS BHD
Research House: OSK
C I Holdings Bhd (CIH)
(June 4, RM2.34)
Maintain buy at RM2.33 with target price of RM3.66: CIH entered into a sale and purchase agreement with Bayplex Realty SB on June 3 for the purchase of a piece of land measuring 6.3ha in Bangi, Selangor with a warehouse on the land for RM29.5 million.
The warehouse has a built-up area of 1.9ha, of which 84% is tenanted. We think that the purchase value of RM29.5 million, equivalent to 1.2 times PBV (price-to-book value), is fair as the property is valued at RM30 million by property valuer Raine and Horne. CIH has had to engage three separate overflow warehouses located 35km-45km from its factory in Bangi, as opposed to the new property, which is only 400m from the plant.
This new warehouse will complement as well as ease the company's storage needs when its new hot-filled line kick starts in FY11. As such, the new property will help save substantial logistics and distribution costs, which currently comprises roughly 20% of total group revenue.
While we await information on the quantum on savings from the management, we note that CIH will benefit either from rental income as 84% of the warehouse is tenanted prior to its shifting into the new warehouse or from the saving of lease rental paid to overflow warehouses once it moves into the new warehouse.
CIH stated that rental from existing tenants in the new warehouse is sufficient to cover its interest payment on the property.
The purchase amount of RM29.5 million will mostly be funded by bank borrowings. CIH's net gearing as at March 31, 2010 was 0.4 times based on a net debt of RM59.9 million and shareholders funds of RM150 million.
The RM26 million in bank borrowing will increase its net gearing from 0.4 times to 0.6 times, which is still within its target gearing of 0.5 times to 0.6 times. Nonetheless, the new warehouse will help save on logistics costs. And when the new hotfilled line starts operation in FY11, CIH's gearing is expected to go down further.
As such, we maintain our FY10 and FY11 numbers and our buy recommendation. Our target price remains unchanged at RM3.66 based on a weighted PER (price-earnings ratio) of 11.3 times FY11 EPS (earnings per share). ' OSK Research, June 4
This article appeared in The Edge Financial Daily, June 7, 2010.
Company Name: C.I. HOLDINGS BHD
Research House: OSK
C I Holdings Bhd (CIH)
(June 4, RM2.34)
Maintain buy at RM2.33 with target price of RM3.66: CIH entered into a sale and purchase agreement with Bayplex Realty SB on June 3 for the purchase of a piece of land measuring 6.3ha in Bangi, Selangor with a warehouse on the land for RM29.5 million.
The warehouse has a built-up area of 1.9ha, of which 84% is tenanted. We think that the purchase value of RM29.5 million, equivalent to 1.2 times PBV (price-to-book value), is fair as the property is valued at RM30 million by property valuer Raine and Horne. CIH has had to engage three separate overflow warehouses located 35km-45km from its factory in Bangi, as opposed to the new property, which is only 400m from the plant.
This new warehouse will complement as well as ease the company's storage needs when its new hot-filled line kick starts in FY11. As such, the new property will help save substantial logistics and distribution costs, which currently comprises roughly 20% of total group revenue.
While we await information on the quantum on savings from the management, we note that CIH will benefit either from rental income as 84% of the warehouse is tenanted prior to its shifting into the new warehouse or from the saving of lease rental paid to overflow warehouses once it moves into the new warehouse.
CIH stated that rental from existing tenants in the new warehouse is sufficient to cover its interest payment on the property.
The purchase amount of RM29.5 million will mostly be funded by bank borrowings. CIH's net gearing as at March 31, 2010 was 0.4 times based on a net debt of RM59.9 million and shareholders funds of RM150 million.
The RM26 million in bank borrowing will increase its net gearing from 0.4 times to 0.6 times, which is still within its target gearing of 0.5 times to 0.6 times. Nonetheless, the new warehouse will help save on logistics costs. And when the new hotfilled line starts operation in FY11, CIH's gearing is expected to go down further.
As such, we maintain our FY10 and FY11 numbers and our buy recommendation. Our target price remains unchanged at RM3.66 based on a weighted PER (price-earnings ratio) of 11.3 times FY11 EPS (earnings per share). ' OSK Research, June 4
This article appeared in The Edge Financial Daily, June 7, 2010.
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