CI goes for M&A boost

  • Business
  • Saturday, 16 May 2015

C.I. Holdings Bhd (CIH), a consumer edible oil company whose share price peaked to all-time high two days ago, is looking forward to higher earnings as it plans to double its monthly export volume in one to two years via its recent RM8.25mil purchase of a 60% stake in Palmtop Vegeoil Products Sdn Bhd.

Group managing director cum major shareholder Datuk Johari Abdul Ghani (pic) says the strategic advantage of acquiring Palmtop hinges on its under-utilised capacity with huge international market connections for consumer-packed edible oil but its growth is crimped by the lack of working capital.

“This is because refined palm oil, which is the raw material for the on-the-shelf exported consumer goods, needs a high amount of working capital due to its short term credit or mainly cash transaction.

“Thus, Palmtop is doing 300 containers a month on average now on original equipment manufacturer (OEM) basis with 2,000 a month containers manufacturing capacity in Pasir Gudang,” he tells StarBizWeek.

CIH, via its wholly-owned subsidiary, Continental Resources Sdn Bhd (CRSB), produces an average of 800 containers a month of about 10,000 tonnes of consumer-packed edible oil in cans, tins, bottles and plastic drums mainly for the export market. This is done at its existing facility in Port Klang that is reaching its maximum capacity of about 85%. Johari says orders had to be turned down sometimes due to capacity constraint.

However, CIH has another Port Klang plant to be operational in July that will add more organic capacity up to 2,000 containers a month.

He says CIH focuses on the export market instead of the local market as the latter is governed by a quota which only grants CIH about 500 tonnes a month

Johari, who is also Tititiwangsa MP, says that with Palmtop in the group, CIH will have a combined capacity of 4,000 containers a month.

“Furthermore, the location of Palmtop in Pasir Gudang that utilises Johor Port will complement our operations in Port Klang as some destinations are cheaper to be exported via Johor Port and vice versa,” he says.

Johari who holds a more than 32% stake in CIH via Jag Capital Holdings Sdn Bhd, says Palmtop also offers intrinsic value via its experienced directors cum major shareholders.

“Sukumaran is a sales and marketing industry expert leading several key companies in the edible oil industry which includes a stint with Singapore-based giant, Saber Pvt Ltd.

“His international connections is quite impressive and we expect to bank on that to further expand our export to more than 100 countries from the current 48 spreading across Asia, the Middle East and Africa,” he says.

Sukumaran’s business partner in Palmtop, Datuk Tan Fok Wah, is bringing his operations and technical expertise to the CIH group in designing and configuring packaging as well as filing lines.

As for the acquisition details, Palmtop’s RM8.25mil price tag for a 60% stake or 8.25 million new shares of RM1 each will be funded via internally generated funds, says the company which had cash RM65.2mil as of March 31.

CIH’s share price recently gained noticeable momentum to reach an all-time high of RM2.95 on Thursday. The RM465mil market capitalisation company closed the week’s trading at RM2.97, down by 2.71% or eight sen.

The counter has climbed close to 195% year-to-date, taking its current price-to-earnings ratio to slightly more than 100 times which is a double-edged sword parameters reflecting either high earnings potential or an overpriced value.

As CIH does not have projected future earnings estimates, the ultimate call is really up to the investors to look into its value.

However, it posted stellar results for nine-months ended March 31, with a net profit of RM5.3mil, from a net loss of RM1.9mil last year. This was achieved on the back of a whopping jump in revenue of RM268.7mil for the group against RM28.7mil a in 2014.

According to Johari, who is an accountant by training, as the consumer-ready edible oil business gets bigger, CIH may eventually dispose of its smaller segment in the group involved in tap and sanitary ware business.

‘‘The contribution of the segment is comparatively smaller now to edible oil. We plan to sell it off, but we not in a hurry and not in talks with anybody yet. Nevertheless, the business easily has net tangible assets of RM20mil,” he says.

The segment’s profit after tax stood at RM882,000 in financial year 2014, a decrease by 49% from the previous year. It had over 750 retails outlets then.

Historically, CIH is a “flexible” entity that is familiar with switching its core businesses via mergers and acquisition banking on Johari’s diverse experience in the corporate world ranging from quarry, Kentucky Fried Chicken to Permanis, a beverage entity and now consumer edible oil,

In 2011, CIH sold its prime asset, beverage company Permanis Sdn Bhd, to Asahi Group Holdings Ltd for RM820mil. About RM720mil or 88% of the disposal amount was distributed back to shareholders.

CIH acquired edible oil manufacturer CRSB for RM42mil.

Prior to Permanis, CIH had a 30% stake in KFC Holdings (M) Bhd (KFCH) which Johari decided to let go following the infamous board-room tussle at KFCH (Malaysia) Bhd (KFCH) around 2005.

Johari is also the chairman of UDA Holdings Bhd, a wholly-owned incorporated company under the Finance Ministry.

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