Highlights

• CBIP entered into 2 separate contracts with PT Niagamas Gemilang, whereby: (1) Modipalm (its wholly-owned subsidiary) will design, manufacture, supply and contract a 30mt FFB/hr (extendable to 60mt FFB/hr) Modipalm Continuous Sterilization palm oil mill for RM22.1m; and (2) PT CB Polaindo (a 95%-owned subsidiary of Modipalm) will install, test, and commission the mechanical and electrical works for a 30mt FFB/hr (extendable to 60mt FFB/hr) Modipalm Continuous Sterilization palm oil mill for RM3.4m.

• We note that the abovementioned contract is the 100th Modipalm Continuous Sterilisation milling system order since inception a decade ago. Financial Impact

• The latest contract will boost CBIP’s unbilled sales for the palm oil mill engineering division by circa 5% to RM555m, equivalent to 1.3x of the division’s FY14 revenue.

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 demand outlook 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 - 20 Apr 2015