- CB Industrial Product Holding Bhd (CBIP) announced that it has received an RM49.8mil contract from United Plantations Bhd to construct a Modipalm mill in Ulu Bernam. The capacity of the palm oil mill is 60 tonnes per hour.

- We view this development positively as the new contract would replenish and sustain CBIP’s construction order book.

- In spite of this, we have assumed that CBIP would receive RM270mil new contracts in FY15F, which is the same as FY14. In FY13, CBIP won RM320mil new contracts.

- We reckon that some plantation companies would be deferring or postponing their capital expenditure plans of building palm oil mill in FY15F due to weak CPO prices.

- This is CBIP’s second announcement of a new contract in FY15F. In January 2015, CBIP received a Letter of Award from Thai Eastern Trat Co Ltd to build a Modipalm mill in Mueang Trat, Thailand. The value of the contract was RM31.3mil.

- About 70% to 80% of CBIP’s contracts come from plantation companies in Malaysia and Indonesia while the balance 20% to 30% are from Africa, Central/South America, Papua New Guinea and Thailand.

- Each Modipalm contract is expected to take 12 to 18 months to complete. We reckon that earnings from contracts received in FY15F would be recognised mainly in FY16F.

- Unbilled sales of CBIP’s mill manufacturing division stood at RM500mil as at end-September 2014. These would be recognised in FY15F.

- Maintain HOLD on CBIP. The group is currently trading at FY15F PE of 11.8x and FY16F PE of 10.8x.

Source: AmeSecurities Research - 9 Apr 2015