Highlights

CBIP entered into a contract agreement with PT. Jas Mulia to supply a 60 tonne FFB/hour continuous sterilizer palm oil mill (together with machineries and accessories) for US$12.9m (or RM41.1m).

Financial Impact

Based on our estimates, the latest contract will boost CBIP’s unbilled sales for the palm oil mill engineering division by 8.7% to approximately RM511m, equivalent to ~1.6x of the division’s revenue in FY13.

Pros/Cons

Positive but not unexpected. This is in line with our view that CBIP is on track to secure more contracts (underpinned by the still-strong demand prospects for palm oil mill).

Earnings Forecasts

Maintained. In our earnings forecasts, we have assumed CBIP to secure RM400m worth of contracts for the palm oil mill engineering division.

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. Maintain Hold recommendation on the stock.

Source: Hong Leong Investment Bank Research - 7 Aug 2014