Highlights

CBIP accepted the letter of award from PT Windu Abadi (which in turn is a subsidiary of PT Bumitama Gunajaya Agro) for the construction of a 60t/hour continuous sterilization palm oil mill project in Central Kalimantan, Indonesia.

The contract is worth RM33m, and will be recognised in 2013, 2014 and 2015 respectively.

Financial Impact

Based on our estimates, unbilled sales for the palm oil mill engineering unit likely to have increased to ~RM454m, equivalent to ~1.3x of the division’s turnover in 2012.

Pros/Cons

Positive but not unexpected, as this is in line with our view that CBIP is on track to secure more contracts and the strong demand prospects for palm oil mill (which in turn is underpinned by rising plantation land bank).

Earnings Forecasts

Maintained, as we have already assumed CBIP to obtain RM300m worth of contracts for 2013 in our earnings forecasts.

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.
• Foreign currency exposure.

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 RM3.39. We continue to like CBIP for: (1) The bright demand prospects for CPO oil mill; (2) Undemanding valuation (current share price of RM2.90 implies 2013 P/E of only 8.3x); and (3) Decent dividend yield of >5% (in our forecast, we are projecting a total DPS of 15 sen/year). Maintain BUY recommendation on the stock.

Source: Hong Leong Investment Bank Research - 14 Oct 2013