Highlights 

AVP Engineering (a 51%-owned subsidiary of CBIP) received a letter of award from the Ministry of Housing and Local Government Malaysia to supply, deliver, install, test and commission 100 units of prime mover vehicle (attached with water tank trailer) to the Fire and Rescue Department of Malaysia for a total contract value of RM136.8m.

The contract has duration of 3 years.

Financial Impact

Based on our estimates, the latest contract will likely have boosted the division’s unbilled sales to RM561m.

Pros/Cons

Positive, this reaffirms our positive view on the company’s earnings outlook.

Earnings Forecasts

Maintained, as this has already been reflected in our forecast for the special purpose vehicle division.

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.

Negative – Low share liquidity.

Valuation

SOP-derived TP maintained at RM3.42 (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 RM2.66 implies 2013 P/E of only 8.4x); and (3) Potential windfall dividends from its huge cash pile of ~50 sen/share. Maintain BUY recommendation on the stock.

Source:Hong Leong Investment Bank Research - 8 Jul 2013