Results

1QFY14 reported net profit of RM23.3m came in within our expectation, accounted for 24.3% of our full-year forecasts. Against the consensus, the results accounted for 23.2% of consensus full-year forecast.

Deviations

Largely in line.

Dividend

Proposed a first interim single tier DPS of 5 sen. For the full-year, we are projecting a total DPS of 15 sen, translating to a net dividend yield of 3.3%.

Highlights

YoY… Although revenue declined by 18.4% to RM121m, 1QFY14 net profit increased by 24.7% to RM23.3m mainly on the back of: (1) higher earnings at the palm oil mill engineering division; (2) lower losses at the upstream oil palm plantation operations; and (3) improved CPO price, which boosted associate and JV earnings contribution.

QoQ… 1QFY14 net profit declined by 39.8% to RM23.3m mainly on the back of lower contribution from the special purpose vehicle division (earnings are traditionally stronger in 4Q) and seasonally lower FFB output that dragged earnings at the associate and JV units.

Based on our estimates, CBIP has orderbook of RM450m and RM182m for its palm oil mill engineering and special purpose vehicle divisions (which in turn is equivalent to 1.4x and 0.7x of the respective division’s turnover).

Risks

• Sharp increase in steel plate prices;
• Slowdown in demand for palm oil mills;
• Lower-than-expected FFB production and oil extraction rate at the JV and associate levels.
• Lower-than-expected dividend.

Forecasts

Maintained.

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

Maintain SOP-derived TP at RM4.48 (see Figure 3). 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 33.2%). Maintain Hold recommendation on the stock.

Source: Hong Leong Investment Bank Research - 30 May 2014