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AmInvest Research Reports

Author: AmInvest   |   Latest post: Fri, 27 Nov 2020, 10:59 AM

 

CBIP - Contracts To Make A Comeback In FY21F

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Investment Highlights

  • We spoke to CB Industrial Product Holding (CBIP) recently. CBIP is currently trading at FY21F PE of 13.6x and FY22F PE of 10.7x based on Bloomberg consensus estimates of 6.6 sen and 8.4 sen respectively.
  • We believe that CBIP’s net profit would improve in FY21F (1HY20: RM16.1mil net profit) on the back of a recovery in the order book of the mill manufacturing division. CBIP is anticipated to receive RM200mil new contracts in FY21F compared with zero in FY20E. This assumes that travel restrictions would be lifted in FY21F.
  • Due to travel restrictions in the region, CBIP has not been able to visit Indonesia to negotiate over palm oil mill contracts. Hence, the group has not been able to finalise and conclude palm oil mill contracts.
  • On a positive note, unbilled sales of the mill manufacturing division stood at RM327.0mil as at end-June 2020, which is enough to sustain CBIP’s earnings for the next one and a half years. Also, CBIP’s maintenance and spare parts business is expected to generate a higher revenue of RM83mil to RM85mil in FY20E vs. RM80mil in previous years.
  • Pre-tax profit margin of the mill manufacturing division is envisaged to be about 19.0% to 20.0% in FY20E vs. 19.9% in FY19. We understand that steel costs are low. In addition, higher margins from the spare parts and maintenance segment would help support the pre-tax profit margin of the mill manufacturing division.
  • We believe that CBIP’s palm refinery in Tanjung Langsat, Johor would record a small pre-tax loss of RM1.0mil to RM2.0mil in FY20E (1HFY20: RM0.9mil pre-tax loss) due to low utilisation rates during the MCO period.
  • Average utilisation rate of the palm refinery dropped to 30% in 2QFY20 from 80% in 1QFY20. The palm refinery in Tanjung Langsat has a processing capacity of roughly 134,000 tonnes per year.
  • We reckon that it would take time for CBIP’s palm oil division in Central Kalimantan to swing into profitability. In spite of high CPO prices currently, the plantation unit is still expected to record a loss in FY20E (1HFY20: RM7.4mil pre-tax loss). This is due to high production costs and small size of mature areas of only 3,000ha. Total planted areas are about 13,000ha.

Source: AmInvest Research - 22 Oct 2020

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