Company Background
C.I.Holdings Berhad (CIHB) was once a darling of Bursa Malaysia with its share price traded to a high of RM5.45. CIHB total turnover in FYE 30 June 2011 was above RM580 million with a net earnings of above RM40 million. CIHB was then a “Giant’ in the Malaysian food & beverages industry.
However, CIHB in July 2011 sold their crown jewel in Permanis Sdn Bhd to Asahi Group Holdings Ltd for RM820.0 million. Shareholders were rewarded with a special dividend of 460 cts and a capital repayment of RM0.50 for every one ordinary share of RM1.00 each held in CIHB.
Prior to the disposal of Permanis, CIHB was involved in two (2) distinct businesses, namely the manufacturing and distribution of tap ware and sanitary ware (building materials division), and the bottling and distribution of beverages (consumer products division). After the completion of the disposal of Permanis, CIHB had ceased to be involved in the consumer products business. With the above sales, the ‘Giant' was left in the wilderness for more than a year searching for direction and food.
Finally in April 2013, CIHB made its first acquisition to re-enter the F&B sector. The ‘Giant’ has now found its footing and is ready to conquer the world.
Acquisition Of Continental Resources Sdn Bhd
CIHB on 3 April 2013 acquired Continental Resources Sdn Bhd (CRSB) by the subscription of 1,800,000 ordinary shares of RM1.00 each in CRSB shares representing the entire issued and paid-up share capital of CRSB, for a purchase consideration of RM42.0 million by :
(i) Issuance of 20.0 million new ordinary shares of RM0.50 each in CIHB at an issue price of RM1.10 per CIHB Share and
(ii) Cash payment of RM20.0 million
The principal activities of CRSB are buying, selling, manufacturing and packing of all types of edible oil. Based on the audited financial statements of CRSB for the FYE 31 December 2012, CSRB registered a PAT of RM6.20 million while the NA of CRSB as at 31 December 2012 is RM18.67 million.
Rationale Of The Acquisition :
As stated in the circular to the shareholders of the Company in relation to the disposal of its 100% equity interest in Permanis Sdn Bhd , the Company had decided to retain an adequate level of cash to provide the Company with the financial flexibility to facilitate the acquisition of viable assets and/or businesses with good fundamentals and growth prospects in order to maximise shareholders’ value. Since the completion of the disposal of Permanis in November 2011, the Company has been actively seeking for, as well as identifying viable assets and/or businesses to be acquired.
By undertaking the acquisition, CIHB has re-enter the consumer products sector, in particular the manufacturing and packing of all types of edible oil which the Company believes has good fundamentals and growth prospects in view of the increasing global demand and consumption for edible oil. Furthermore, as CRSB is already income-generating, the acquisition is also expected to contribute positively to the future earnings of the CIHB.
The issuance of the Consideration Shares will minimise the cash outlay by CIHB in acquiring the Sale Shares and at the same time, provide an opportunity for the Vendors to participate in the equity of the Company and incentivise them, through the alignment of interest, to contribute towards the better performance of the enlarged CIHB, given that each of the Vendors will be entering into separate service agreement with CRSB.
Prospects of Continental Resources Sdn Bhd :
CRSB is a manufacturer for an array of house brand products which are available domestically and worldwide. CRSB also undertakes value-added manufacturing and packaging of resource based products including refined palm oil products and soft oils blended which are exported to various parts of the world including Middle East, Africa and ASEAN countries. CRSB is strategically located in Telok Panglima Garang, Kuala Langat, Selangor which is not more than 20 kilometres from Port Klang, one of the main ports in Malaysia.
Given the strong global demand and consumption of edible oil which are primarily driven by population growth and higher per capita income, CIHB believes that CRSB will be able to benefit from these positive developments which bodes well for the future performance and growth prospects of CRSB.
Situated within a strategic location central to its vendors and logistical infrastructure, CSRB is able to transfer its cost competitiveness into all its products. CRSB also hold the following accreditations:
MS 1480:2007 Food Safety according to HACCP system
MS 1514:2009 GMP For Food
MS 1480:2007 Food Safety System Certification
ISO 22000:2005 FSMS Certification
ISO 22000:2005 FSMS
Malaysian Phytosanitary Certification Assurance Scheme
HALAL Certificate of Authentication
United States Food & Drug Administration (US FDA) for direct exports of edible oils & edible oil products to the USA
Acquisition of Palmtop Vegeoil Products Sdn Bhd
CRSB, a wholly-owned subsidiary of CIHB has on 12 May 2015 acquired Palmtop Vegeoil Products Sdn Bhd (PALMTOP) by the subscription of 8,250,000 new ordinary shares of RM1.00 each representing 60% of the enlarged paid up share capital of PALMTOP for a total purchase consideration of RM8.25 million.
As a result of the acquisition, PALMTOP will be a 60% owned subsidiary of CRSB, which in turn a subsidiary of CIHB.
PALMTOP’s principal activities are buying and selling, manufacturing and packing of Refined Bleached Deodorized (RBD) Palm Olein and all types of edible oils.
Rationale For The Acquisition :
The Acquisition provides value added benefits for CRSB to expand its current export markets in manufacturing and packaging of resource based products including RBD palm olein and any other blended soft oils which are exported to various parts of the world. CRSB currently exports to forty-eight (48) countries.
The intrinsic value of PALMTOP also lies with the two directors, Dato’ Sukumaran’s track record and market reach/clientele over 106 export countries and Dato’Tan Fok Wah’s key operation/technical person tasked in designing and configuring PALMTOP packaging /filing lines.
The location of the two new companies PALMTOP and PNC Oil Factory (Malaysia) Sdn Bhd (Fully owned subsidiary of PALMTOP) fits into CIHB’s strategy of diversifying its manufacturing bases to take advantage of cost efficient logistics depending on the various export markets the Company ships to. The two newly acquired plants, both located in Pasir Gudang will further add capacity to the existing plants in Klang and are expected to increase from the current 800 x 20 Footer Full Container Load (FCL) of about 10,000 tonnes of consumer-packed edible oil in cans, tins, bottles, and plastic drums to 2,000 FCLs per month.
Outlooks of RBD Palm Olein and edible oils industry and the prospects of PALMTOP in light of the industry’s outlook:
RBD Palm Olein and other types of edible oils are typically used by household users for general purposes and industrial users as cooking oil or frying oil. Both PALMTOP and CRSB handle the same product range i.e. RBD Palm Olein, Refined Soybean Oil, Sunflower Oil, Canola Oil and Corn Oil.
The consumption of edible oils are primarily driven by factors such as growing demand for food arising from population and economic growth, wide range of application of edible oils, increasing demand from China and India and emerging markets like the Middle East and Africa.
The vibrancy of Malaysia’s palm oil industry on the global front has created opportunities in the downstream segment. PALMTOP being in the downstream segment involved in processing and packing of edible oils, potential is robust due to strong worldwide consumer demand and sustainability of this segment over the long term.
CIHB Present Business Segment :
CIHB Products :
Above are products in different packing & sizes
Diverse Geographical Reach :
CIHB geographical reach is achieved through exporting their products to foreign markets and through the customers’ export reach. CIHB's edible oils are distributed to retail consumers, large international food traders, trading companies, retail chains, institutional users and food service industries for both domestic and export markets
CIHB Financial Performance :
CIHB revenue for Q1 ending 30 September 2015 jumped to RM260.092 million earning a net profit of RM10.068 million (inclusive of full 3 months contributions from PALMTOP). Annual turnover is expected to breach the RM1 billion mark with a targeted net profit of about RM40 million or 25 cts per share, thus reducing the forward P/E ratio to 9.9 times at the current share price of RM2.48. This is pretty low compared to industry average P/E of 20 (Yee Lee : 15.38, OFI : 18.41, Kawan : 26.38, Hup Seng : 20.03). Based on the industry average P/E of 20, CIHB's fair value is at RM5.00.
The Proposed Acquisition Of Continental Palms Pte Ltd
CIHB announced on 27 Nov 2015 that PALMTOP, a 60%-owned subsidiary of CRSB, which in turn a sub-subsidiary of CIHB has on 27 November 2015 entered into a Share Sale Agreement (“SSA”) to acquire Five Hundred Thousand (500,000) ordinary shares being the issued and fully paid up share capital in Continental Palms Pte Ltd (CPPL) for a total purchase consideration of Singapore Dollar Five Hundred Thousand (SGD500,000) only. As a result of the Proposed Acquisition, CPPL will be a 100% owned subsidiary of PALMTOP, which in turn a subsidiary of CIHB.
The principal activities of CPPL is selling and marketing Refined Bleached Deodorized (RBD) Palm Olein and all types of edible oils. The Proposed acquisition will not have any material effects on the share capital, earnings, net assets per share and gearing of the Company for the financial year ending 30 June 2016. However, it is expected to contribute positively on the future earnings of CIHB.
Outlook Of The Proposed Acquisition Of Continental Palms Pte Ltd :
CPPL has a solid customer base in over 100 countries around the globe and would be able to provide a continuous and sustainable business growth to the Group’s edible oils division. This blends in well with CIHB’s objective of expanding its international presence in the edible oil industry to therefore further enhance future sales growth and ultimately shareholders’ value. CIHB will also have the benefit of being supported by a strong sales and marketing team, led by Dato’ Sukumaran, with vast experience in the edible oil industry.
Conclusion
CIHB will be focusing on expanding its current business of manufacturing and packing of consumer edible oil via its 100% owned subsidiary, CRSB especially with the latter’s recent acquisition of 60% interest in PALMTOP. CIHB now has a combined capacity of 4,000 containers per month. Given the company's additional capacity and wider distribution network, sales is set to be stronger in the coming years.
Notwithstanding the above, CIHB will continue to be on the lookout for any possible mergers and acquisitions relating to Fast Moving Consumer Goods so as to expand its current portfolio of consumer staples.
Y.B. Datuk Johari Abdul Ghani, our present Deputy Finance Minister, holds 32.7% stake in CIHB via Jag Capital Holdings Sdn Bhd . Born and raised in Kampung Pandan, the certified accountant is no stranger to the business world. He started his career as an auditor with Peat Marwick & Co (now known as KPMG) and worked his way up the corporate ladder, having held key positions in several public listed companies including chairman of UDA Holdings and group managing director of CIHB. Datuk Johari has since vacated both posts after taking up his cabinet position in July 2015.
En Megat Joha Bin Megat Abdul Rahman is the new Group Managing Director of CIHB. He is a USA trained and qualified accountant who graduated from Boston University, Massachusetts with a Degree in Accountantcy & Finance in 1986 and started his career with Peat Marwick Mitchell Chicago, USA. Having passed the USA examination in 1987 in Chicago he returned to join the KPMG Kuala Lumpur Office in 1988. En Megat brings valuable experience to the group, with his wide stints and directorships in various public listed & private ltd companies, including Group CEO of Maju Perak Holdings Bhd and Chief Operating Officer cum Executive Director (Operations) at Mayban Securities Sdn Bhd.
CIHB and also PALMTOP’s directors Dato’ Sukumaran s/o Ramasamy & Dato’Tan Fok Wah offers intrinsic value via its experience directors cum major shareholders. Dato’ Sukumaran’s track record and market reach/clientele over 106 export countries and Dato’Tan Fok Wah’s key operation/technical person tasked in designing and configuring PALMTOP packaging /filing lines.
The location of PALMTOP in Pasir Gudang that utilises Johor Port will compliment CRSB’s operations in Port Klang as some destinations are cheaper to be exported via Johor Port and vice versa.
The proposed acquisition of CPPL is expected to contribute positively to the future earnings of the group. CPPL has a solid customer base in over 100 countries around the globe and would be able to provide a continuous and sustainable business growth to the Group’s edible oils division.
Analysis of CIHB shareholders as at 30 September 2015 revealed that the thirty (30) largest shareholders controlled about 87.33 % of the company. Thus CIHB's free float is only about 12.67 % or 20.5 million shares.
At the current share price of RM2.48, CIHB is a value buy based on forward earnings per share of 25 cts and a P/E ratio of 9.9 times. With CIHB's robust growth in the F&B export sector, it has potential to be valued nearer to industry average P/E of 20 or at RM5.00.
BursaKakis medium term TP - RM3.75 @ forward PE of 15 times.
Note : The comments above do not represent a recommendation to buy or sell.
Wishing all Happy New Year & a fruitful year ahead.
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