Results

9MFY14  reported  net  profit  of  RM67m  (+12.6%)  accounted for  69.4%  and  67.9%  of  our  and  consensus  full-year forecasts.  We  consider  the  results  within  expectations,  as we  expect  stronger  4Q  (the  special  purpose  vehicle division  is seasonally stronger  in 4Q).

Deviations

• Largely in line.

Dividend

• Proposed  a  2 nd interim  DPS  of  3  sen,  bringing  total  DPS YTD to 5.5 sen, which is in line with our projection.

Highlights

YTD…  although  revenue  declining  by  8.1%  to  RM394.9m (dragged  mainly  by  lower  progress  billing  at  the  SPV division),  9MFY14  core  net  profit  increased  by  12.6%  to RM67m  mainly  on  the  back  of  higher  progress  billing  and margin expansion  at the palm oil mill engineering  division.

QoQ…  3QFY14  core  net  profit  rose  by  7%  to  RM 22.6m mainly  on  the  back  of  higher  progress  billing  at  the  SPV division,  and turnaround  at the JV entity.

Based  on  our  estimates,  CBIP  has order book of RM535m and  RM119m  for  its  palm  oil  mill  engineering  and  SPV divisions  (which  in  turn  translate  to  1.7x   and  0.45x  of  the respective  divisions’ turnover  in FY13), respectively .

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

  –  (1)  Low  share  liquidity ;  and  (2)  Bright  demand prospects have  already  been priced-in.

Valuation

Maintain  SOP-derived  TP  of  RM2.13.  At  this  juncture, CBIP’s  strong  earnings  visibility  at  its  palm  oil  mill engineering  division  and  balance  sheet  has  already  been priced-in.  Potential  earnings  upgrade  hinges  on emergence  of  re-rating  catalyst  (i.e.  the commercialization of  zero  discharge  waste  management  system).  Maintain HOLD  recommendation

Source: Hong Leong Investment Bank Research - 21 Nov 2014