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

-  CBIP’s 1HFY14 results were within consensus estimates and our expectations. We expect the group’s profit growth to accelerate in 2HFY14 as CBIP usually recognises the bulk of its progress billings in the 2H of the financial year.

-  Comparing 1HFY14 against 1HFY13, CBIP’s net profit expanded 18.3% to RM44.4mil. This was in spite of a 16.4% fall in turnover. Reason for the decline in CBIP’s turnover is the order book contraction of the retro-fitting division.

-  Turnover of the mill manufacturing division rose 11.8% YoY to RM184.2mil in 1HFY14 driven by an increase in order book. We estimate that the group has secured RM161mil contracts year-to-date.

-  We have assumed that CBIP would receive RM350mil mill contracts in FY14F versus RM320mil in FY13.

-  Unbilled sales of the manufacturing division stood at RM488mil as at end-March 2014. This would sustain the group’s profitability for more than a year.

-  Underpinned by higher selling price and low cost of steel, pre-tax profit margin of the manufacturing division rose from 24.5% in 1HFY13 to 25.2% in 1HFY14.

-  According to Bloomberg, average price of cold-rolled steel fell by 2.7% from US$698.80/short tonne in 1HFY13 to US$680.00/short tonne in 1HFY14. On a QoQ basis, average price of cold-rolled steel inched down 3.1% to US$669.23/tonne in 2QFY14.

-  Pre-tax profit of the retro-fitting division slid 52.7% YoY to RM4mil in 1HFY14. Pre-tax profit margin of the division was 6.6% in 1HFY14 compared with 6.5% in 1HFY13. Unbilled sales of the division stood at RM187mil as at end-March 2014.

-  Pre-tax loss of the plantation division widened from RM3.1mil in 1HFY13 to RM4.2mil in 1HFY14 as CBIP had only commenced planting oil palm in Kalimantan last year. CBIP plans to plant about 6,000ha of oil palm every year. As at end-September 2013, planted areas amounted to 3,400ha.

-  Currently, CBIP has 86,715ha of plantation landbank in Indonesia. These include the proposed acquisition of 21,674ha of land in Central Kalimantan, which was announced in June 2014.

Source: AmeSecurities