• We spoke to CB Industrial Product Holding (CBIP) recently. CBIP is presently trading at an annualised FY23E PE of 11x.

• The palm engineering division is expected to record a revenue of RM300mil in FY23E (FY22: RM283.2mil), supported mainly by recurring income from trading services, maintenance and spare parts segment. The segment is envisaged to account for 50% of the palm engineering division’s revenue in FY23E.

• Unbilled sales of the palm engineering division stood at RM259mil as at 31 March, which is enough to keep the group busy for a year.

• We gather that plantation companies are still reluctant to invest in palm oil mills in spite of decent palm product prices. New plantings of oil palm are slow in Indonesia while in Malaysia, planters are focusing on acquisitions. The capex cycle for palm oil mills has been quiet for the past couple of years.

• Pre-tax profit of the palm engineering division is envisaged to recover in 2QFY23 after being hit by higher costs in 1QFY23. The division is expected to record a pre-tax profit margin of 15%-20% in FY23E. Steel costs have stabilised and the group is expected to benefit from lower electricity expenses in 2HFY23. Steel accounts for 40% of production costs while electricity makes up another 10%.

• The refining division is anticipated to remain in the black for the rest of FY23E in the absence of derivative losses. Recall that the refining unit recorded a pre-tax profit of RM3.5mil in 1QFY23 vs. a loss of RM8.9mil in 1QFY22. Currently, the refinery is operating at an average utilisation rate of 41%. The refinery has a processing capacity of 134,000 tonnes per year.

• We believe that CBIP may sell its plantation assets in the future. The unit has a net book value of RM150milRM160mil. The plantation division is still expected to register losses in FY23E (1QFY23 pre-tax loss: RM2.9mil). This is due to a high cost of production, weaker CPO prices and low FFB yields. CBIP has planted areas of 13,895ha in Central Kalimantan presently.

• CBIP is currently trading at an annualised FY23E PE of 11x vs. its 2-year average of 9x.

Source: AmInvest Research - 17 Aug 2023