Highlights

CBIP proposed:

Bonus issue of up to 272m shares on the basis of 1 bonus share for every existing CBIP share; and

Bonus issue of up to 90.7m warrants (5-year) on the basis of one warrant for every 3 existing CBIP shares.

The final exercise price of warrants will be determined after obtaining the approvals of the shareholders and relevant authorities but before the entitlement date.

Pros/Cons

Positive. While bonus issue does not theoretically result in fundamental changes to a company, it does, however, enhance the liquidity and marketability of the shares.

Earnings Forecasts

Maintained.

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 - 12 Aug 2014