• CB Industrial Product Holding (CBIP) has received a RM61.4mil contract from Oriental Holdings Bhd. The contract was awarded on 20 December 2017.

• The contract involves the design and manufacturing of a Modipalm mill with a processing capacity of 60 tonnes per hour, at South Sumatra, Indonesia.

• We view the award of the contract positively as it would increase CBIP's order book and help sustain its net profit in FY18F and FY19F.

• CBIP usually takes about 12 to 18 months to build a palm oil mill.

• The award of the contract from Oriental Holdings means that CBIP received about RM221.4mil new contracts in FY17E.

• In comparison, the group received about RM250mil new contracts in FY16.

• Unbilled sales of the mill manufacturing division stood at RM436mil as at end-June vs. RM448mil as at end-March 2017.

• In spite of the drop in new contracts wins in FY17E, we have forecast CBIP's net profit to improve by 15.6% in FY18F partly underpinned by a fall in the effective tax rate.

• The lower effective tax rate is due to the potential receipt of the pioneer status for CBIP's new zero effluent palm oil mill. We have assumed an effective tax rate of 10% in FY18F compared with 24% in FY17E.

• Maintain HOLD on CBIP with an unchanged fair value of RM2.00/share. Our fair value for CBIP implies a FY18F PE of 11.5x.

Source: AmInvest Research - 5 Jan 2018