Investment Highlights

• We spoke to CB Industrial Product Holding (CBIP) recently. Based on Bloomberg consensus estimates, CBIP is currently trading at a FY22F PE of 10.9x. FY21E dividend yield is estimated to be 3.4%.

• CBIP’s order book is expected to improve in FY22F. As cross-border travelling has been permitted in certain countries, CBIP would be able to carry out negotiations and survey land conditions in countries like Indonesia and Papua New Guinea.

• CBIP hopes to win mill manufacturing contracts of RM80.0mil to RM100.0mil in FY22F. We believe that the new contracts would be awarded mainly by plantation companies in Indonesia. In FY21E, CBIP is expected to win mill upgrading jobs of RM80.0mil. Its unbilled order book stood at RM345.0mil as at end-June 2021, which is expected to sustain CBIP’s net profit for 1.5 years.

• The targeted new contract wins of RM80.0mil to RM100.0mil in FY22F are below CBIP’s usual RM150.0mil to RM200.0mil. We understand that industry capex spending is slow and plantation companies in Indonesia are still reluctant to invest in palm oil mills unless necessary. Generally, a palm oil mill is required when mature areas reach 7,000ha to 10,000ha.

• We do not expect CBIP to be affected by higher steel costs. Steel prices have climbed by 30% since last year. Before CBIP signs its palm oil mill contracts, the group will obtain indicative prices for the steel parts and then reflect the costs and margins in the contract value. We reckon that the pre-tax profit margin of the mill manufacturing division would hover between 20% and 25% in FY22F.

• Pre-tax profit of CBIP’s palm refining division may increase in FY22F (1HFY21: RM5.6mil) if the group signs a tolling agreement with an oil and gas company. Under the tolling agreement, CBIP would process and sell refined/biodiesel palm products to the oil and gas company. Currently, CBIP’s biodiesel plant has a processing capacity of 120,000 tonnes per year while the palm refinery has a capacity of 134,000 tonnes per year.

• We believe that the core pre-tax profit (ex-impairment of RM5.0mil) of the plantation division would be positive at around RM10.0mil in FY21E (FY20: pre-tax loss of RM10.9mil) on the back of strong palm product prices. CBIP has planted areas of about 13,762ha in Kalimantan, Indonesia.

Source: AmInvest Research - 20 Oct 2021