Results

• FY14 reported net profit of RM92.7m (-5.6%) was within our expectation, accounted for 96% of our forecast. Against the consensus, the results accounted for 93.9% of consensus estimates.

Deviations

• Largely in line.

Highlights

• YTD… FY14 net profit declined by 5.6% to RM92.7m, as higher earnings contribution from the mill engineering division (which PBT increased by 12.7% to RM91.9m on the back of higher progress billings) was negated by lower progress billings at the SPV division (on the back of depleting order book) and higher losses at the upstream plantation division.

• QoQ… 4QFY14 net profit increased by 13.5% to RM25.7m, as higher losses at the upstream plantation division was more than mitigated by higher earnings contribution from the mill engineering and SPV divisions (which are historically stronger in 4Q).

• Based on our estimates, CBIP has order book of RM480m for the palm oil mill engineering division (which in turn translates to 1.2x of the division’s turnover in FY14).

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) Favourabledemand outlook for palm oil mills; and (3) Strong balance sheet.

Negatives

• (1) Low share liquidity; and (2) Bright demandprospects have already been priced-in.

Valuation

Maintain SOP-derived TP of RM2.13. At this juncture, CBIP’s strong earnings visibility of 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 - 26 Feb 2015