KUALA LUMPUR: CI Holdings Bhd (CIH), a sanitary ware and tap manufacturer, intends to purchase edible oil producer Continental Resources Sdn Bhd for RM42 million. This serves as CIH’s door to re-enter the consumer products sector, where it says there are growth prospects in global demand and consumption.

In a filing with Bursa Malaysia, CIH said since it sold off drinks manufacturer Permanis Sdn Bhd, it has been actively seeking and identifying viable assets.

“As [Continental Resources] is already income-generating, the proposed acquisition is also expected to contribute positively to the future earnings of the CIH group,” the company said in the filing.

“[Continental Resources] is the manufacturer for an array of house brand products which are available domestically and worldwide. [It] also undertakes value-added manufacturing and packaging of resource-based products including refined palm oil products and blended soft oils which are exported to various parts of the world including the Middle East, Africa and Asean countries,” CIH said.

It said that in 30 years, global per capita consumption of palm oil increased by 6kg or 500% to 7.2 kg in 2012. Edible oil consumption registered a compound annual growth rate of 7.6% in the last 30 years.

CIH said the acquisition of Continental Resources is not expected to have any material effect on its financial performance for 2013 financial year ending June (FY13), given that it expects the acquisition to be completed by December, or the second quarter of FY14.

CIH said Continental Resources made a net profit of RM6.2 million for FY12 ended Dec 31 and it has given a profit guarantee of RM6 million for FY13. Its net assets were RM18.67 million as at FY12. CIH noted that Continental Resources has a price-earnings ratio (PER) of 6.8 times based on its FY12 net profit, which is higher than comparable companies’ average of 6.1 times. The trading PERs of these companies, said CIH, are between 2.2 and 9.1 times.

The purchase of Continental Resources, which will cost RM42 million, will consist of a cash payment of RM20 million and a proposed issuance of 20 million new CIH shares at an issue price of RM1.10. CIH shares were last traded at RM1.10 before trading was suspended yesterday morning.

These new shares will then be issued to Continental Resources managing director Lee Cheang Mei and executive director Fung Heen Choon. The two individuals, who are also co-founders of the company, will each receive 10 million CIH shares.

CIH said issuing these shares will minimise its cash outlay for the acquisition. It added that giving equity participation to Continental Resources’ co-founders will incentivise them to contribute to  the performance of the enlarged CIH group.

This article first appeared in The Edge Financial Daily, on April 4, 2013.