- We are downgrading CB Industrial Product Holding Bhd (CBIP) from BUY to HOLD with a lower value of RM2.40/share. Our fair value is based on a fully diluted FY15F PE of 13x.

- We believe that plantation companies would reduce or delay their capex plans in view of low CPO prices. As such, CBIP may not be able to increase the size of its order book in FY15F.

- CBIP’s 9MFY14 results were within consensus estimates and our expectations. We expect stronger recognition of progress billings in 4QFY14. In FY13, 4Q accounted for 39% of full year’s net profit.

- CBIP’s net profit expanded by 7.0% QoQ to RM22.6mil in 3QFY14 due to a pick-up in the performance of the retro-fitting division.

- The unit’s pre-tax profit surged by 263.3% QoQ to RM6.2mil in 3QFY14. This helped cushion a 7.1% contraction in the pre-tax profit of the mill manufacturing division.

- CBIP’s turnover fell by 8.1% YoY to RM394.9mil in 9MFY14 dragged by a 47.4% decline in the revenue of the retro-fitting division. The retro-fitting unit did not receive as many contracts in FY13 as it did in FY12.

- In spite of this, the group’s net profit rose 12.6% YoY to RM67mil in 9MFY14 underpinned by a higher number of mill manufacturing contracts. CBIP received RM320mil contracts in FY13 versus RM280mil in FY12.

- The 16.7% YoY climb in the pre-tax profit of the mill manufacturing division more than compensated for the 42.3% fall in the earnings of the retro-fitting division in 9MFY14.

- Unbilled sales of the mill manufacturing division stood at RM465mil as at end-June 2014 while that of the retro-fitting unit stood at RM158mil.

- Unbilled sales of the mill manufacturing division of RM465mil are expected to sustain CBIP’s profitability for another year.

- Plantation division’s pre-tax loss widened from RM5mil in 9MFY13 to RM6.5mil in 9MFY14 due to pre-operating expenses. CBIP has just commenced planting in Indonesia this year.

Source: AmeSecurities