Highlights

• CBIP received letter of award from Glory Jade Investments Limited, a subsidiary of the East New Britain Palm Oil Limited to supply a continuous sterilization palm oil mill with 60 tonnes/hour capacity for Narangit Palm Oil Mill in Rabaul District, East New Britain Province, Papua New Guinea for a total consideration of RM60m.

Comment

• Including this contract, CBIP has secured close to RM400m worth of new contracts this year. This is close to its target of RM400-500m new contracts and in line with our 2015 replenishment assumption of RM400m.

• This contract would help to replenish CBIP's order book and it is expected to contribute positively to 2016's and 2017's earnings. As at end of Sept 2015, CBIP's order book stood at RM478m.

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. In our earnings forecasts, we have assumed CBIP to secure RM400m worth of contracts for the palm oil mill engineering division.

Rating

BUY

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 BUY with unchanged Target Price of RM2.10 based on SOP valuation.

Source: Hong Leong Investment Bank Research - 7 Dec 2015