Stock Name: CIHLDG
Company Name: C.I. HOLDINGS BHD
CI Holdings Bhd
(June 20, RM3.08)
Maintain market perform at RM3.05 with revised fair value of RM3.30 (from RM3): We recently visited CI Holdings' (CIH) factory in Bangi where we viewed its production lines for both its carbonated and non-carbonated products. One of the key interests of the tour was the new non-carbonated line which was installed in September 2010.
The new line, which cost approximately RM45 million, increased CIH's non-carbonated capacity by 70% to 80% as it operates at a much faster speed than the previous two lines. CIH's maximum annual non-carbonated capacity in terms of revenue was thus increased to about RM560 million per year (from about RM300 million), although it is currently only utilising about 40% to 45%.
We understand that CIH is planning to launch a new non-carbonated product within these two weeks. It has already launched Revive Lime Burst (carbonated) in 1QFY11, followed by the launch of Tropicana Twister Blackcurrant (non-carbonated) in 2QFY11. In 3QFY11, CIH launched a new logo and packaging for its Revive products.
Although the management would not reveal any details about the new product, we believe it could be another variant of Tropicana Twister, as we expect CIH to continue to leverage on its strong brand equity and market leadership position.
We understand that CIH has locked in its sugar requirements until the end of 2012 at somewhere between RM2.60 to RM2.70 per kg, as it was locked in sometime in 3QFY11.
This is in line with our estimate of about RM2.63 per kg for 2HFY11 and 1HFY12. From 2HFY12 onwards, CIH's sugar costs would depend on the new long-term contract (LTC) negotiated by the government for raw sugar.
We are keeping our sugar cost assumptions for FY11/12, although for FY13, we are reducing our assumptions slightly as we expect sugar prices to remain fairly stable from 2012 to 2015 due to the government LTC. We have previously assumed a sugar cost rise of about 8% for FY13, which we have now changed to a flat price assumption from FY12.
The risks include: (i) a significant drop in demand; (ii) significant increase in raw material prices such as crude oil and sugar; and (iii) foreign exchange risk as CIH buys concentrate from PepsiCo in US dollars.
Our FY13 ending June earnings forecast is increased by 15.2% after imputing our new flat sugar cost assumptions for the year, while our FY11/12 forecasts are unchanged.
Our fair value is increased to RM3.30 (from RM3.00 previously) after rolling forward our valuations to 11 times CY12 (from CY11 previously). We maintain our 'market perform' call on the stock. A near-term re-rating catalyst could be its venture into the snack manufacturing business, depending on the valuations and synergistic benefits. ' RHB Research, June 20
This article appeared in The Edge Financial Daily, June 21, 2011.
Company Name: C.I. HOLDINGS BHD
| Research House: RHB | Price Call: HOLD | Target Price: 3.30 |
CI Holdings Bhd
(June 20, RM3.08)
Maintain market perform at RM3.05 with revised fair value of RM3.30 (from RM3): We recently visited CI Holdings' (CIH) factory in Bangi where we viewed its production lines for both its carbonated and non-carbonated products. One of the key interests of the tour was the new non-carbonated line which was installed in September 2010.
The new line, which cost approximately RM45 million, increased CIH's non-carbonated capacity by 70% to 80% as it operates at a much faster speed than the previous two lines. CIH's maximum annual non-carbonated capacity in terms of revenue was thus increased to about RM560 million per year (from about RM300 million), although it is currently only utilising about 40% to 45%.
We understand that CIH is planning to launch a new non-carbonated product within these two weeks. It has already launched Revive Lime Burst (carbonated) in 1QFY11, followed by the launch of Tropicana Twister Blackcurrant (non-carbonated) in 2QFY11. In 3QFY11, CIH launched a new logo and packaging for its Revive products.
Although the management would not reveal any details about the new product, we believe it could be another variant of Tropicana Twister, as we expect CIH to continue to leverage on its strong brand equity and market leadership position.
We understand that CIH has locked in its sugar requirements until the end of 2012 at somewhere between RM2.60 to RM2.70 per kg, as it was locked in sometime in 3QFY11.
This is in line with our estimate of about RM2.63 per kg for 2HFY11 and 1HFY12. From 2HFY12 onwards, CIH's sugar costs would depend on the new long-term contract (LTC) negotiated by the government for raw sugar.
We are keeping our sugar cost assumptions for FY11/12, although for FY13, we are reducing our assumptions slightly as we expect sugar prices to remain fairly stable from 2012 to 2015 due to the government LTC. We have previously assumed a sugar cost rise of about 8% for FY13, which we have now changed to a flat price assumption from FY12.
The risks include: (i) a significant drop in demand; (ii) significant increase in raw material prices such as crude oil and sugar; and (iii) foreign exchange risk as CIH buys concentrate from PepsiCo in US dollars.
Our FY13 ending June earnings forecast is increased by 15.2% after imputing our new flat sugar cost assumptions for the year, while our FY11/12 forecasts are unchanged.
Our fair value is increased to RM3.30 (from RM3.00 previously) after rolling forward our valuations to 11 times CY12 (from CY11 previously). We maintain our 'market perform' call on the stock. A near-term re-rating catalyst could be its venture into the snack manufacturing business, depending on the valuations and synergistic benefits. ' RHB Research, June 20
This article appeared in The Edge Financial Daily, June 21, 2011.
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