January 28, 2011

CIHLDG - Squeeze C I Holdings into your portfolio

Stock Name: CIHLDG
Company Name: C.I. HOLDINGS BHD
Research House: CIMB

C.I. Holdings Bhd
(Jan 27, RM3.60)
Maintain buy at RM3.51 with target price RM5.15
: C I Holdings' (CIH) 2QFY11 from June net profit of RM11.3 million took 1H bottom line to RM23.1 million, which accounted for 54% of our full-year forecast and 53% of consensus estimate. We consider it to be broadly in line with expectations as 4Q is expected to be slow due to the absence of major festivities. Also not surprising is the interim dividend per share of five sen, higher than 1H10's four sen. We maintain our EPS forecasts and target price of RM5.15, pegged to an unchanged target market PER of 14.5 times. CIH remains a 'buy' and our top F&B pick, underpinned by the potential catalysts of an increasingly marketable product line and M&A. We view the recent share price weakness as a buying opportunity.

Net profit in 2Q11 jumped 43% year-on-year, aided mostly by new capacity and an aggressive distribution drive. The new RM45 million production line for non-carbonated drinks in Bangi started operations in September 2010 as scheduled. Tropicana Twister blackcurrant, which was unveiled in December 2010, is produced at the new facility. The extra capacity has also allowed the production of Lipton and Gatorade to be progressively taken back from contract packers to Bangi. Another major growth factor is a wider retail reach. As at June 2010, CIH's beverages are distributed at 42,000 outlets, an improvement over 36,595 as at June 2009. Fast-food outlets, hypermarkets and convenience stores make up CIH's major accounts. The company plans to expand its distribution outlets to 45,000 by June 2011.

The non-carbonated beverages led the double-digit year-on-year growth, with Tropicana remaining the bestseller. From a 20:80 sales split between non-carbonated and carbonated portfolios a few years ago, non-carbonated drinks made up about 40% of 2Q11 revenue, thanks to the popularity of Tropicana. With the start of the new production line in September 2010, CIH aims for a 50:50 sales contribution between non-carbonated and carbonated drinks over the next few years. ' CIMB Research, Jan 27


This article appeared in The Edge Financial Daily, January 28, 2011.

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