Highlights

CBIP received a letter of acceptance from Sime Darby Plantation to design, supply, deliver and commission of a 30mt/hour Modipalm Continuous Sterilisation palm oil mill in Grand Mount Testate, Liberia, worth RM38.5m.

Financial Impact

Based on our estimates, the latest contract announcement will boost CBIP’s total unbilled sales for the palm oil mill engineering division to ~RM524.2m, equivalent to 1.65x of the division’s turnover in 2013.

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 win RM400m worth of contracts for 2014 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; and
• Foreign currency exposure.

Rating

HOLD

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 RM4.48. We continue to like CBIP for its strong earnings visibility (arising from the bright demand prospects for CPO mill, witness by the strong orderbook) and balance sheet. However, we believe further share price upside will likely be capped by its current valuation (YTD, share price has risen by 41.9%). Maintain Hold recommendation on the stock.

Source: Hong Leong Investment Bank Research - 8 Apr 2014