Highlights 

CBIP secured 2 contracts (worth  RM105.5m),  to:

1.  Design,  manufacture,  supply,  install,  testing  and commissioning  of  a  60mt/hour  Modipalm  Continuous Sterilisation palm oil mill for Vanimo  Green Palm Oil Mill Ltd in Papua  New Guinea  for RM57m; and

2.  Design,  manufacture,  supply,  install,  testing  and commissioning  of  a  60mt/hour  Modipalm  Continuous Sterilisation palm oil mill for Merchong Palm Oil Mill Sdn Bhd for  RM48.5m.

Financial Impact

The  latest  contract  will  boost  CBIP’s  unbilled  sales  for  the palm  oil  mill  engineering  division  by  25.4%  to  RM521.1m, 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 (YTD, the division has secured total contracts worth RM250m,  based on our estimates).

Risks Downside  risks-

• Sharp  increas e 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 RM4.54.  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 - 15 Oct 2014