CI Holdings needs new business to remain listed

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KUALA LUMPUR: CI Holdings Bhd, with a huge cash pile once it
completes the multi-million ringgit sale of bottling unit Permanis Sdn
Bhd to Japan's Asahi Group Holdings, may have to buy a new non-beverage
business to maintain its listing status, analysts said.


Meanwhile, on Bursa Malaysia yesterday, CI Holdings was the top gainer,
surging some 15 per cent or 53 sen to close at RM4.61, its steepest gain
in more than two years.

Analysts said CI Holdings cannot
venture into any ready-to-drink beverages business in Malaysia any time
soon as it is barred from the manufacturing or distribution of such
drinks for three years after it sells Permanis.

CI Holdings must also not disrupt supply to Permanis during the period.




"Given that CI Holdings intends to maintain its listing status and the
fact that its tap and sanitary ware business is still small and growing,
the group is likely to invest the proceeds in a new business," OSK
Research said in a report.

CI Holdings sealed a conditional
share sale agreement with Asahi on Thursday to dispose of all its 70
million Permanis shares for RM820 million. The sale is expected to be
completed in the fourth quarter of the year.

With Permanis gone, CI Holdings will be left with its tap and sanitary ware business via DOE Industries Sdn Bhd.

"Permanis accounted for 93 per cent and 87 per cent of CI Holdings'
financial year 2010 revenue and net profit respectively. The disposal of
Permanis will leave the group with DOE business, which generated a top-
to bottom-line of RM36.1 million and RM2.4 million in financial year
2010 respectively.

"While this tap and sanitary ware division
continued to perform strongly in the first nine months of 2011, with a
revenue and net profit of RM33.6 million and RM4.8 million respectively
and a net profit margin that expanded to 14.2 per cent versus 6.6 per
cent in financial year 2010, it will take time for the division (DOE) to
grow," OSK Research explained.

After disposing of Permanis, OSK
Research said CI Holdings would have a total cash of RM763.1 million,
after deducting Permanis' post acquisition reserves totaling RM51.9
million and estimated expenses for the proposed disposal of RM19
million.

However, the firm said CI Holdings has not indicated any concrete plans on how to use the sale proceeds.

The company, it added, may proceed to acquire viable businesses and assets or make a cash distribution to shareholders.

"The huge cash pile sitting in its books could well make CI Holdings a
cash company, a listed company whose assets on a consolidated basis
consists of 70 per cent or more in cash or short-term investments, or a
combination of both, and it would be required to submit a proposal to
regularise its condition within a timeframe, to be determined by Bursa
Malaysia," it noted.

In such a situation, OSK Research said it
has raised its fair value on CI Holdings to RM5.77. It advises
investors to take profit and sell on strength, given that there are
still some small uncertainties like whether the deal will proceed, how
CI Holdings will utilise its huge cash proceeds and when it would reach a
decision.

Meanwhile, analyst Elina Hashim who tracks CI
Holdings stock at MIDF Research, said the company may target two sets of
businesses - food and beverage (F&B) manufacturing business,
excluding ready-to-drink business and F&B services.

"This is
because they (CI Holdings) have the experience in operating F&B
manufacturing business through Permanis. There will be no setback in
replicating the same thing again to other business with similar job
functions," she said.

In addition, Elina said CI Holdings
managing director Datuk Johari Abdul Ghani, was formerly involved in the
Kentucky Fried Chicken business.

"Therefore, CI Holdings has the right person and expertise to go into this section as well.

"We
opined that a wide opportunity has been laid out for CI Holdings going
forward as far as we are concerned on the acquisition matter. We
believe that this sale will be a positive newsflow to CI Holdings
shares," she said