Highlights

• CBIP received a letter of acceptance from Golden Veroleum (Liberia), a subsidiary of PT Sinar Mas, to supply, fabricate, install and commissioning of a 40/80 TPH Tarjuowon palm oil mill and Greenville bulking station in Liberia for a total sum of RM74.9m. Financial Impact

• The latest contract has boosted CBIP’s unbilled sales for the palm oil mill engineering division by circa 13.5% to RM630m, equivalent to 1.5x 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. YTD, CBIP has secured RM181m worth of contracts for the palm oil mill engineering division, based on our estimates.

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 - 6 May 2015