- CB Industrial Product Holding (CBIP) has received a RM60mil contract to build a Modipalm mill with a capacity of 60 tonnes per hour, from New Britain Palm Oil Ltd (NBPOL).

- We view this positively as it would increase CBIP’s order book and sustain its profitability.

- We estimate that CBIP has received more than RM300mil worth of contracts year-to-date. We think that the group would be able to win about RM350mil contracts by year-end.

- FY15F’s new contracts of RM350mil compared with FY14’s contract wins of RM270mil should underpin CBIP’s net profit growth in FY16F and FY17F. Each contract lasts between 12 and 18 months.

- Unbilled order book of the mill manufacturing division stood at RM539mil as at end-June 2015 vs. RM480mil as at end-March 2015.

- Overall, about 70% to 80% of CBIP’s contracts are from Malaysia and Indonesia while the balance of 20% to 30% is from Africa, Papua New Guinea and South and Central America.

- Going forward, the pre-tax profit margin of the mill manufacturing division is expected to range between 22% and 24% underpinned by the low cost of steel. Steel is estimated to account for 80% to 90% of production costs.

- CBIP is not expected to be hit significantly by the increase in minimum wage as most of its workers are already paid higher than the threshold of RM1,000/month proposed under Budget 2016.

- Maintain BUY on CBIP with an unchanged fair value of RM2.33/share. The group is currently trading at an undemanding FY16F PE of 10.8x.

Source: AmeSecurities Research - 7 Dec 2015