Results

1H13 reported net profit of RM37.5m (-11.5%) accounted for 39.9-40.9% of our and consensus full-year estimates. We consider the results within expectations as we expect strong earnings from the special purpose vehicle division in 2H.

Deviations

Largely in line.

Dividend 

-

Highlights

YTD. Despite revenue rising by 10.9% to RM293.8m, 1H13 net profit declined by 22.5% to RM37.5m mainly on the back of the absence of earnings contribution from the oil palm plantation division (which sale was concluded in 1Q12) and losses at the JV and associate level (on the back of lower CPO prices), which altogether more than offset higher earnings at the two core divisions (i.e. palm oil mill and special purpose vehicle divisions).

YoY. 2Q13 net profit declined by 20.3% to RM18.9m mainly due to lower progress billings at the special purpose vehicle division and losses at the JV and associate level.

Moving forward, we remain positive on the company’s earnings prospects, underpinned by: (1) Still strong demand for palm oil mills; and (2) The recent RM137m ordered secured at the special purpose vehicle division, which will in turn buoy the division’s earnings.

Risks

• Sharp decline in oil mill engineering contracts; and
• Steep rise in raw material prices, in particular, steel plates.

Forecasts

Maintained, pending further update with management.

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 tweaked slightly lower to RM3.39 (see Figure 3) to reflect its latest net cash position. We continue to like CBIP for: (1) Its bright fundamentals (based on our estimates, CBIP has order book of RM225m for its oil mill engineering division or 0.7x of FY12 revenue); (2) Undemanding valuation (at 2013 and 2014 P/E of 8.4x and 8.1x, respectively); and (3) Decent dividend yield of >5% (in our forecasts, we are projecting a total DPS of 15sen/year). Maintain BUY

Source: Hong Leong Investment Bank Research - 20 Aug 2013