Highlights

• CBIP received letter of award from P.T. Ichtiar Gusti Pudi, a subsidiary of Ahmad Zaki Resources Berhad to supply a continuous sterilization palm oil mill with 60 tonnes/hour capacity at Kabupaten Landak, Kecamatan Ngabang, Kalimantan Barat for a total consideration of RM51m.

Comment

• Including this contract, CBIP has secured about RM440m worth of new contracts this year. This is within its target of RM400-500m new contracts but above 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.

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

• Although YTD new contract secured has already exceeded our assumption, we remain conservative and maintain our earnings forecast pending further update with management.

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 - 8 Dec 2015