- 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 9MFY13 results were within consensus estimates and our expectations.

- CBIP’s EBIT was relatively flat YoY at RM65.3mil in 9MFY13 as losses in the plantation division were offset by contribution from the other divisions. We believe that the losses were operating expenses incurred by CBIP’s plantation division in Kalimantan, which commenced operations this year.

- The plantation division recorded a pre-tax loss of RM5mil in 9MFY13 versus RM1.2mil in 9MFY12.

- Pre-tax profit of the mill construction division inched down by 3.1% from RM59.7mil in 9MFY12 to RM57.8mil in 9MFY13. Turnover of the division declined by 4.3% YoY to RM240mil in 9MFY13.

- We reckon that this was due to lower recognition of progress billings in 3QFY13. On a QoQ basis, turnover of the mill construction division fell by 18.6% to RM75.3mil in 3QFY13.

- Pre-tax profit margin of the mill construction division inched up from 23.8% in 9MFY12 to 24.1% in 9MFY13, supported by a higher proportion of mechanical and engineering contracts and a fall in steel prices.

- According to Bloomberg, average price of cold-rolled steel shrank by 7.2% from US$742.50/short tonne in 9MFY12 to US$688.68/short tonne in 9MFY13.

- Unbilled sales of the mill construction division stood at RM420.9mil as at end-June 2013. This was about 0.8x of the division’s turnover in FY12.

- We estimate that CBIP has secured RM320mil worth of contracts in FY13F. This would help sustain the group’s profitability in the coming 12 to 18 months.

- In October 2013, CBIP announced the award of an RM33mil contract from PT Bumitama Gunajaya Agro. The contract involves the construction of a 60 tonne per hour Modipalm mill in Central Kalimantan, Indonesia.

- We believe that this is CBIP’s first contract from the Bumitama Group. We reckon that CBIP is positioned to secure more contracts from Bumitama in the future.

- CBIP has also been receiving more contracts from companies in South America and Africa. We estimate that the group has six contracts from these regions currently.

Source: AmeSecurities