-  We maintain BUY on CB Industrial Product Holding Bhd (CBIP) with an unchanged fair value of RM3.50/share. Our fair value is based on a FY14F PE of 10x.

-  CBIP’s valuations are undemanding, as reflected in its FY13F PE of 8.3x and FY14F PE of 7.8x. Its closest competitors, Boilermech Bhd and Muar Ban Lee Bhd are currently trading at annualised FY13F PEs of 9.3x to 17.4x.

-  CBIP’s dividend yields are decent, at 4.4% for FY13F and 4.7% for FY14F. The group was in a net cash position of RM170.5mil as at end-FY12. Operating cashflows are roughly RM90mil to RM100mil annually while capex is estimated at RM50mil for FY13F.

-  CBIP hopes to secure RM350mil to RM450mil worth of contracts in FY13F. Unbilled sales of RM390mil as at endMarch 2013 should sustain the group’s profits for another 1 ½ years.

-  Potential contracts in FY13F are expected to consist of orders for new mills, conversion of conventional mills to Modipalm and boiler contracts.

-  Driving the increase in orders for new mills is the expansion of mature areas. Kalimantan is expected to experience significant increases in mature palm oil areas thanks to new plantings carried out in previous years.

-  Pre-tax profit margin of the mill construction division is envisaged to remain stable at 22% in FY13F.

-  Supporting margins are low steel costs and M&E contracts. M&E works for new mills command better margins, which are three to five percentage points higher than turnkey contracts.

-  CBIP has sourced all of its steel requirements for FY13F. According to Bloomberg, price of cold rolled steel has declined by 12.2% from US$740/short tonne in mid-2012 to US$650/short tonne currently.

-  CBIP has started planting oil palm in Central Kalimantan. The group planted about 1,445ha in 1QFY13. The target for new plantings is 6,000ha for this year. Planting cost is estimated between RM16,000/ha to RM20,000/ha.

-  CBIP has about 60,418ha of greenfield landbank in Indonesia in total. Out of these, about 70% to 75% or 42,000ha to 45,000ha are plantable.

Source: AmeSecurities