- We maintain a BUY on CB Industrial Product Holding Bhd (CBIP) with a higher fair value of RM3.50/share. Our fair value is based on a FY14F PE of 10x. The group has announced a single-tier interim dividend of 5 sen/share.
- We consider CBIP’s 1QFY13 results to be within consensus and our expectations as the bulk of the group’s progress billings are usually recognised in 2H of the financial year. CBIP’s pre-tax profit improved 7.5% YoY in 1QFY13. However, core net profit remained flat due to higher effective tax rate and minority interest.
- CBIP’s turnover surged 30.9% YoY to RM148.3mil in 1QFY13 underpinned by the retro-fitting division, which retro-fits ambulances and fire engines for the authorities.
- Pre-tax margin of the mill construction division improved from 22.8% in 1QFY12 to 25.4% in 1QFY13 on the back of higher valued-added contracts and lower steel costs. Turnover of the division declined 6.8% YoY to RM72.4mil in 1QFY13.
- Mechanical and engineering contracts normally command higher margins compared to turnkey contracts.
- Steel prices were subdued in 1QFY13. According to Bloomberg, the price of cold-rolled coil declined 9.5% from an average of US$784.62/short tonne in 1QFY12 to US$710/short tonne in 1QFY13.
- CBIP is estimated to have received RM350mil to RM400mil worth of contracts in FY12 compared with RM374.3mil in FY11. Each contract lasts between 12 and 18 months.
- As at end-December 2012, unbilled sales of CBIP’s mill construction division stood at RM349mil. This should sustain the group’s turnover for another 1 ½ years.
- In April 2013, CBIP announced the proposed acquisition of a land parcel in Meru, Klang for RM36mil.
- We view the proposed acquisition positively as it would allow the group to expand the production capacity of its boiler operations.
- Out of CBIP’s contracts-in-hand of RM902mil as at endSeptember 2012, about 20% were boiler contracts. Some of CBIP’s boiler customers include Wilmar International and Sime Darby.
- CBIP is expected to start planting on its Indonesian landbank this year. New plantings are envisaged to be 5,000ha. Planting cost is estimated at US$6,000/ha or RM18,000/ha.
Source: AmeSecurities
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