Investment Highlights

• We spoke to CB Industrial Product Holding (CBIP) recently. Based on Bloomberg consensus estimates, CBIP is currently trading at a FY23F PE of 7x. FY23F dividend yield is estimated to be 3%.

• CBIP is expected to perform better in FY23F in the absence of impairments on receivables and investments, which amounted to RM44.9mil in FY22. In addition to these, the group’s refining division recognised derivative losses of RM16.8mil in FY22.

• CBIP’s mill engineering division hopes to secure RM200mil contracts in FY23F vs. RM160mil in FY22. The contracts are envisaged to come from Indonesia. Most of the jobs are anticipated to be in respect of mill upgrades. Unbilled sales stood at RM261mil as at end-FY22, which can sustain the group for a year.

• We understand that the capex cycle for plantation companies ended a few years ago. Plantation companies are currently focusing on landbank acquisitions and infrastructure upgrades instead of palm oil mills. Also due to the fall in new plantings in Indonesia since 2012, demand for palm oil mills has been declining. Generally, a palm oil mill is required for mature areas of 7,000ha to 10,000ha.

• We believe that CBIP’s mill engineering division would be able to sustain its PBT margin of 15% to 20% in FY23F. CBIP is not affected by the volatility in steel costs as the cost of steel is included in the contract value. Also, CBIP would not be significantly hit by higher electricity tariffs. Steel accounts for 40% of production costs while electricity accounts for less than 10%.

• CBIP’s refining division is anticipated to swing into the black in FY23F from a pre-tax loss of RM42.7mil in FY22. This is due to improved refining margins and absence of derivative losses, which amounted to RM16.8mil in FY22.

• The refinery is currently operating at an utilisation rate of 40%. The break-even utilisation rate is low at 30% as the investment cost of the plant is only RM60mil or RM480/tonne. The refinery has a processing capacity of 125,000 tonnes per year.

• On a negative note, CBIP’s plantation division is expected to remain in the red in FY23F (FY22 pre-tax loss: RM12.8mil). A high production cost per tonne, low FFB yield and weak CPO price are envisaged to drag FY23F earnings. With the exception of FY21, the plantation division has been making losses every year since FY13. CBIP has planted areas of 13,500ha in Central Kalimantan.

• CBIP is currently trading at a consensus FY23F PE of 7x vs. its 2-year average of 9x.

Source: AmInvest Research - 16 Mar 2023