Maintain HOLD on CB Industrial Product Holding (CBIP) with an unchanged fair value of RM2.15/share. Our fair value implies a FY18F fully diluted PE of 11.5x.
We consider CBIP's 1HFY17 core results to be within our expectations and consensus estimates as most of the group's progress billings are usually recognised in the 2H of the financial year.
CBIP's net profit rose by 57.2% YoY to RM42.9mil in 1HFY17 underpinned by the absence of losses on investment and forex, and higher earnings contribution from the retro-fitting unit. CBIP recognised equity and forex losses of RM7.8mil in 1HFY16.
Mill manufacturing division recorded a 14.0% YoY decline in turnover in 1HFY17 due to a lower order book. Excluding the equity and forex losses, we estimate that manufacturing EBIT shrank by 19.1% YoY to RM39.2mil in 1HFY17.
CBIP received RM250mil new mill contracts in FY16 compared with RM360mil in FY15. Unbilled order book stood at RM448mil as at end-March 2017 against RM441mil as at end-December 2016. We have assumed that CBIP would win RM350mil new contracts in FY17F.
EBIT margin (ex-equity and forex losses) of the mill manufacturing division was lower at 21.9% in 1HFY17 vs. 23.3% in 1HFY16. We believe that the squeeze in EBIT margin was due to an increase in steel costs.
According to Bloomberg, average price of cold rolled coil was US$694.04/short tonne in 1HFY17 vs. US$562.12/short tonne in 1HFY16. Steel accounts for more than 80% of production costs.
Revenue of the retro-fitting unit surged by 125.2% YoY to RM93.8mil in 1HFY17 while EBIT climbed by 200.9%. The division received a record order book of RM550mil in FY16. Unbilled order book of the unit stood at RM405mil as at end-March 2017 vs. RM448mil as at end-December 2016.
CBIP's balance sheet is clean. Net cash stood at RM76.5mil as at end-June 2017 compared with RM74.3mil as at endMarch.
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MQ Trader 5727 views | 5 d ago
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