News

• CBIP has declared a special dividend of 4sen/share for financial year ended 2015. Ex-date is 25 Feb 2016.

Comments

• The special dividend is a pleasant surprise and it will raise its total dividend for 2015 to 10sen/share, above our expectation of 6sen/share. This translates into dividend yield of 5.0%.

• We continue to like CBIP given its strong order book. As at Sep 2015, it reported an order book of RM478m. This will continue to support earnings growth in 2016 and 2017.

• Besides, regaining its pioneer tax status for its POME division, which is currently pending for approvals from relevant authorities, would be an earnings catalyst for CBIP highlighted in our previous report. Upon approval, this would boost its earnings contribution for the next 5-10 years.

• We are expecting better qoq results in 4Q15 supported by a pickup in CBIP's recognition of progress billings for its palm oil mill engineering (POME) division.

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

• No changes in earnings forecasts.

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 RM2.30 based on SOP valuation.

Source: Hong Leong Investment Bank Research - 5 Feb 2016