Highlights

Some key highlights on CBIP from our recent visit to one of its customers’ mill in Trolak, Perak include: (1) Orderbook at both the oil mill engineering and special purpose vehicle (SPV) divisions remain healthy; (2) Expect stronger 2H on higher project billings and higher CPO output; and (3) Plantation landbank in Indonesia to grow bigger.

Oil mill engineering has total orderbook of RM421m (as at end-2Q13), equivalent to 1.2x of its turnover in 2012. Given the commendable orderbook (of which bulk of it will be recognised in 2014), we believe the division’s strong performance will sustain into 2014.

SPV division has a total orderbook of RM345.6m (as at end- 2Q13, equivalent to 1.9x of the division’s revenue in 2012), consisting of 200 units of emergency rescue and service vehicles, and 100 units of water tank trailers.

Although net profit in 1H13 declined by 22.5% to RM37.5m, we believe earnings will play catch up in 2H, on the back of higher progress billing at the SPV division (as more deliverables are scheduled in 4Q13) and seasonally higher FFB output. In our forecast, we are projecting CBIP’s core net profit in 2H to expand by 50% yoy (from 1H) to RM56.5m (bringing total core net profit for the year to RM94m).

CBIP has so far achieved new planting of 2,000 ha in Indonesia, and it has guided down its planting target for the year from 11,000 ha to 5,000 on delay in obtaining local authority’s approval. Management highlighted that it is still keeping to its aggressive planting target for the next 8 years. New planting aside, management highlighted that it is in negotiation to secure another 34,000 ha of landbank within its current landbank’s vicinity, and this will boost its total plantation landbank to ~90,000 ha upon completion.

Earnings Forecasts

Maintained.

Catalysts

• Better-than-expected profit margins at the oil mill engineering and/or SPV divisions; and
• CPO prices strengthens.

Risks

• Sharp increase in steel plate prices;
• A slowdown in demand for palm oil mills;
• 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 – Share liquidity.

Valuation

We remain confident on the sustainability of CBIP’s earnings growth, which in turn is underpinned by sizeable orderbook and continued demand for mills as well as overall increase in planted areas. Moreover, it has an attractive dividend yield of more than 5%. Maintain BUY and SOP-derived TP at RM3.39.

Source: Hong Leong Investment Bank Research - 25 Sep 2013