CIHLDG ... Nov10

S & P Results Review & Earnings Outlook

• CIH reported 1QFY11 (Jun) net profit of MYR11.8 mln (+43.2% YoY). The results were in line with consensus and our expectations. The sharp rise in earnings was largely attributed to continuous revenue
growth from both its beverages and tap & sanitary ware divisions, as well as prudent cost management. CIH’s 1QFY11 gross margin has improved slightly to 39.8% (1QFY10: 39.5%).

• CIH’s beverages division remains to be the biggest revenue contributor (about 92.9% of total revenue), with revenue growing 25.2% YoY to MYR142.6 mln in 1QFY11. The strong growth was mainly due to a successful Hari Raya promotional campaign and newly launched products such as Mountain Dew. The group targets to expand its distribution coverage to 45,000 outlets in FY11 (from 42,000 outlets in FY10).

• Meanwhile, the group’s tap & sanitary ware division also recorded improved results, with revenue rising 11.3% YoY to MYR11.0 mln. The division has benefited from incremental sales to various public projects
and a strengthening MYR.

• We leave our earnings estimates largely unchanged. We expect future earnings growth to be supported by additional capacity from its new non-carbonated beverage line, which commenced production in September 2010.


Recommendation & Investment Risks
• We maintain our Buy recommendation with a higher 12-month target price of MYR4.65 (from MYR3.80), after rolling forward our valuation parameter.

• Our target price is based on assigning a 13.5x PER multiple (from 12.5x, in line with higher peer valuations) on our estimated FY12 EPS (rolled over from FY11). Our target PER is a 20% discount to CIH’s
peers average as CIH has a smaller market capitalization.

• In addition to focusing on its core business, CIH is actively looking to invest in other synergistic new businesses (such as food-related businesses, which can utilize its strong distribution network) to further
fuel both its revenue and profit growth. If these materialize, long-term prospects for CIH would remain exciting.

• Risks to our recommendation and target price include higher-thanexpected raw material and packaging costs (like aluminum and corrugated cartons), increased competition from other beverage products, and slower-than-expected consumer spending, which would affect demand for its products.