Highlights

CBIP acquired a building, which sits on a piece of freehold land measuring 4.05 ha in Klang for RM36m.

The building (which has 2 single storey factories, a 3-storey office building, a single-storey canteen building and a guard house and surau building) has a total gross floor area of 13,500 sq meters.

We believe the acquisition price (which works out to be RM83/sq ft) is fair, as new factory building in the same vicinity is priced at about RM152-178/sq ft. Financial Impact

The acquisition will reduce CBIP’s net cash from RM173.5m (as at 31 Dec 2012) to RM137.5m.

Pros/Cons

Neutral, we believe the latest acquisition is part of CBIP’s plan to expand its manufacturing capacity.

Earnings Forecasts

Maintained.

Risks

Downside risks-

• Sharp increase in steel plate prices, which may in turn affect CBIP’s engineering division’s profitability;
• A slowdown in demand for palm oil mills, which would affect CBIP’s engineering division’s fortunes;
• Lower-than-expected FFB production and oil extraction rate at the JV and associate levels.

Rating

BUY

• Positives – (1) Proven track record; (2) Favourable demand outlook for palm oil mills; and (3) Strong balance sheet.
• Negatives – Low share liquidity (but we expect this to improve upon bonus issue).

Valuation

SOP-derived TP maintained at RM3.41 (see Figure 1). We continue to like CBIP for: (1) The bright demand prospects for CPO oil mill; (2) Undemanding valuation (current share price of RM2.58 implies 2013 P/E of only 7.3x); and (3) Strong balance sheet (with net cash of RM0.61 as at 30 Sep 2012).

Source: Hong Leong Investment Bank Research - 1 Apr 2013