- Maintain BUY on CB Industrial Product Holding Bhd (CBIP) with an unchanged fair value of RM5.15/share. Our fair value is based on an FY15F PE of 13x.

- We consider CBIP’s 1QFY14 results to be within consensus estimates and our expectations. The group normally recognises the bulk of its progress billings in 2H of the financial year. Included in CBIP’s net profit was an RM2.9mil fair value gain on short-term investments.

- CBIP’s 1QFY14 net profit grew by 24.7% YoY to RM23.3mil in spite of an 18.4% fall in turnover. The retro-fitting division recorded a 57.7% YoY slide in revenue in 1QFY14 due to lower number of contracts.

- In contrast, turnover of the manufacturing division climbed by 22.6% YoY to RM88.7mil in 1QFY14 as the group received more jobs last year.

- CBIP secured RM330mil contracts in FY13 against RM280mil in FY12. Earnings contribution from the contracts won in FY13 is expected to be reflected in FY14F’s financials.

- Unbilled sales of the manufacturing division stood at RM440mil as at end-FY13. In FY14F, CBIP is anticipated to win more than RM350mil worth of mill construction contracts.

- Pre-tax profit margin of the manufacturing division rose from 25.4% in 1QFY13 to 26.7% in 1QFY14 on the back of higher selling price and lower steel costs. We believe that the selling price of CBIP’s palm oil mills has risen a few percentage points over the past few years.

- According to Bloomberg, the average price of cold-rolled steel declined by 2.7% from US$710/short tonne in 1QFY13 to US$690.77/short tonne in 1QFY14.

- Earnings of the retro-fitting division fell by 56.9% YoY to RM2.3mil in 1QFY14. However, pre-tax margin of the division remained resilient, inching up from 7.0% in 1QFY13 to 7.2% in 1QFY14.

- We believe that the retro-fitting division received only RM136.8mil in contracts in FY13.

- In FY14F, the division is expected to win more than RM150mil worth of contracts, which imply that the unit’s profit growth would resume from FY15F onwards.

- Unbilled sales of the retro-fitting division stood at RM215mil as at end-FY13.

Source: AmeSecurities