Results

• FY15 core net profit of RM96.5m (+9.1% yoy) came in above expectations, accounting for 116-117% of market and our full-year forecasts.

Deviations

• Better than expected margin for its palm oil mill engineering division.

Dividend

• -

Highlights

• Strong qoq growth for its 4Q15 net profit was mainly supported by the higher earnings contribution from the palm oil mill engineering (POME) division (which PBT increased by to RM44.1m from RM18.7m in 3Q15 on the back of higher progress billings and margin improvement) and higher project billing from SPV division.

• 2015 core net profit rose by 9.1% yoy to RM96.5m mainly due to better margin for its POME division and higher project billing for SPV division. Improvement in margin was mainly driven by the appreciation in US dollar. About 40% of its orderbook is denominated in US dollar.

• Strong support from POME division. This division remains the key driver for CBIP with its strong order book of RM517m as at Dec-15. For FY16, our assumption for contract replenishment is RM450m. These will continue to drive the earnings growth in 2016 and 2017.

• SPV division orderbook replenished. We understand that CBIP has secured a sizeable contract of about RM200m for its SPV division in 1Q16. This would able to support the performance for this division for the next 18 months.

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

• We revised our earnings forecast for 2016 and 2017 upward by 5-7% to factor in the better than expected performance in 2015.

Rating

BUY

Positives

• (1) Proven track record; (2) Favourable demand outlook for palm oil mills; and (3) Strong balance sheet.

Negatives

• Share liquidity.

Valuation

• Maintain BUY with higher Target Price of RM2.35 (previous TP: RM2.30) based on SOP valuation.

Source: Hong Leong Investment Bank Research - 25 Feb 2016