CIC after-tax profit forecast to grow by 24% to Rs. 945 m

John Keells Stock Brokers (JKSB) is forecasting CIC’s profit after tax to grow by 24% to Rs. 945 million in 2010/11 financial year. The latest forecast by JKSB is following the release of its second quarter earnings and review of some of its plans. Here are excerpts of the JKSB Company Update on CIC:

Substantial increase in revenue, healthier profit margins and reduced finance costs enabled CIC to post a 10-fold Year-on-Year (YoY) growth in PAT for the 2QFY11 to reach Rs. 457.9 m. Quarterly revenue grew by 26.1%YoY from the comparative quarter previous year thanks to the strong performance of the agriculture and livestock segment.

Finance expenses decreased by 35.3% YoY during the quarter on the back of lowering interest rates despite a 33% YoY increase in borrowings. Gross profit margin increased to 23% compared with 19.2% achieved in the 2Q last year and distribution and administration expenses grew by 10.5% and 29.4% YoY respectively during the period under review.

Agriculture and livestock segment accounted for a 67.3% share of revenue and 76.9% of operating profits. The segmental revenue grew by 10.4% while recording an operating profit growth of 60.8% compared to the comparative period last year. A bulk of the revenue was generated by the Poultry and Feed Sector.

The segmental profit margins increased from 6.6% in the last year’s 2Q to 9.6%. Increased product penetration with the dealer network expansion supported by increased sales due to the expansion of super market chains and successful performance evident in Johnson and Johnson products led the Consumer and Pharmaceutical segment to register a 34.6% YoY revenue growth rate during the six months.

The segmental share increased to 19.42% of the group’s revenue. It accounted to an 11% share of operating profits while operating profit margin improved to 4.9% by the end of 1H FY11 when compared to that of the last year.

Improved performance of the Indian consumables added further strength to the 2Q results of this segment.

The construction segment experienced a substantial increase in revenue during the current quarter by registering a growth of 36.2% YoY. This is mainly attributable to the sales growth posted in decorative paints (which accounted to an 80% of the segment’s revenue) as a result of resurgence of domestic paint demand with the commencement of housing, hotel refurbishment and condominium projects.

However, segmental profit margin for the 1HFY11 reduced to 7.2% from 10.5% in the last year’s comparative period due to increased marketing and distribution costs.

Despite the registered revenue growth of 31.1%, the packaging segment witnessed a marginal decrease in profitability during the period under review.

Outlook

The company has planned to enter into the dry fish manufacturing industry by 2011. It is also exploring possibilities of entering to green gram cereal manufacturing to strengthen its position in the agriculture business by adding value to agricultural products.

Due to the improved performance of the agriculture, consumer and construction segments coupled with the recent initiation of the brand ‘Malty’ that signifies the arrival of CIC to the food sector, we expect CIC to enjoy a 24% increase in PAT for FY11 to reach Rs. 945 m, which translates to an EPS of Rs. 8.11. This will correspond to earnings multiples of 16.9x and 12x for voting and non‐voting shares at market prices of Rs. 137 and Rs. 97.20 respectively.