Investment Highlights

• We spoke to CB Industrial Product Holding (CBIP) recently. According to Bloomberg, CBIP is currently trading at FY21E PE of 10.1x and FY22F PE of 12.0x. The group’s FY21E dividend yield is estimated to be 3.6%.

• CBIP’s plan to monetise some of its non-core assets may take time to complete due to Covid-19 lockdown measures. The asset disposals are supposed to fetch proceeds of more than RM100mil.

• CBIP’s operations at its plant in Teluk Panglima Garang, Selangor, were halted from 21 June to 4 July 2021 due to an outbreak of Covid-19. CBIP hopes to resume operations soon, pending approvals from MITI.

• The temporary halt in the manufacturing operations is not expected to affect CBIP’s earnings significantly unless the EMCO in Selangor is extended beyond 16 July and industries apart from food are still not allowed to operate.

• We do not expect CBIP to win any mill manufacturing contract in FY21E (FY20: zero) as opposed to the initial target of new contract wins of RM150mil. The ban on travelling has affected contract negotiations in Indonesia. Also, we understand that plantation companies in Indonesia are not in a hurry to build palm oil mills even though CPO prices are high.

• In spite of this, we reckon that CBIP’s mill manufacturing pre-tax earnings would sustain at about RM90mil in FY21E due to an unbilled order book of RM289mil as at endMarch 2021 and jobs from mill upgrades and spare parts. About 50% of the division’s revenue in FY21E is expected to comprise jobs from mill upgrades and spare parts.

• Pre-tax profit margin of the mill manufacturing division is envisaged to hover between 25% and 30% in FY21E compared with the usual 20% to 25% as mill upgrades and spare parts trading command higher margins than the normal turnkey contracts.

• On a positive note, we believe that CBIP’s plantation division (planted areas of 13,600ha in Kalimantan) would be profitable in FY21E (1QFY21: pre-tax profit of RM1.8mil) as long as average CPO price exceeds RM3,000/tonne. CBIP’s refining unit is also anticipated to be in the black in FY21E (1QFY21: pre-tax profit of RM0.9mil) supported by a higher sales volume. In FY20, the palm refining division recorded a pre-tax loss of RM3.7mil in FY20 due to fair value loss on derivatives and a low utilisation rate.

Source: AmInvest Research - 8 Jul 2021