Highlights

• CBIP received a letter of award from Thai Eastern Trat Co. Ltd to design and supply a 30-45mt/hour Modipalm Continuous Sterilisation palm oil mill in Mueang Trat, Thailand for a contract sum of RM31.3m. Financial Impact

• The latest contract will boost CBIP’s unbilled sales for the palm oil mill engineering division by ~6% to RM550m, 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 demandoutlook for palm oil mills; and (3) Strong balance sheet.

Negatives

• Low share liquidity.

Valuation

• SOP-derived TP maintained at RM2.13. 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 Jan 2015