Results

1HFY14 reported net profit of RM44.4m (+18.3%) accounted for 46.3% and 44.3% of our and consensus fullyear forecasts. We consider the results within expectations, as we expect stronger 2H (the special purpose vehicle division is seasonally stronger in 4Q).

Deviations

Largely in line.

Dividend

None

Highlights

YTD… Although revenue declined by 16.4% to RM245.5m, 1HFY14 net profit grew by 18.3% to RM44.4m mainly on the back of higher earnings contribution from palm oil engineering division, improved associate earnings and narrowed JV losses (on higher FFB selling prices).

QoQ… 2QFY14 net profit declined by 9.3% to RM21.1m mainly due to lower progress billings at both palm oil engineering and special purpose vehicle divisions and lower FFB prices (which resulted in weaker associate and JV performances).

Based on our estimates, CBIP has orderbook of RM416m and RM153m for its palm oil engineering and special purpose vehicle divisions (which in turn translate to 1.3x and 0.7x of the respective division’s turnover in FY13).

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 RM4.54 (see Figure 4). 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 - 26 Aug 2014