Results

• 1QFY15 core net profit of RM22m (yoy: -5.5%; qoq: - 14.3%) accounted for 25.8% and 27.2% of consensus and our full-year forecasts respectively. We consider the results within expectations, as we expect earnings to come in lower in the subsequent quarters, given the expiry of Modipalm’s tax free status in 1Q15.

Deviations

• Largely in line.

Dividend

• Proposed first interim DPS of 3 sen. For the full-year, we are projecting a total DPS of 5.5 sen, translating to a projected dividend yield of 2.7%.

Highlights

• YoY… 1QFY15 core net profit declined by 5.5% to RM22m, and the slight profit decline was due mainly to: (1) Weaker FFB production and palm product prices, which in turn resulted in its JV and associates slipping into losses in 1Q; and (2) Lower contribution from the SPV division (given the absence of lumpy project secured).

• QoQ… The 14.3% qoq decline in 1QFY15 earnings was due to: (1) Seasonally lower progress billing at the palm oil mill engineering division; (2) Absence of lumpy projects secured at the SPV division; and (3) Losses at the JV and associates (arising from lower FFB production and palm product prices.

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.

Negatives

• (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 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 - 29 May 2015