Results

• 2Q16 core net profit of RM18.2m (qoq: +6.7%; yoy: -9.5%) took 1H16 core net profit to RM37.1m (-6.4%), accounting for 35.2-37.2% of consensus and our full-year forecasts. We consider the results within expectations, as 1H is seasonally weaker on the back of lumpy earnings recognition at the SPV segment.

Deviations

• Broadly in line.

Dividend

• None.

Highlights

• Qoq… 2Q16 core net profit rose 6.7% to RM18.2m mainly on the back of higher earnings contribution from the palm oil mill engineering and SPV divisions, turnaround at the upstream plantation business (thanks to higher palm product prices and output recovery), and stronger associate earnings (arising from higher palm product prices).

• YTD… Although revenue rose by 7.6% to RM251m (mainly on higher contribution from both the mill engineering and SPV divisions), 1H16 core net profit declined by 6.4% to RM37.1m, as higher project billings at the mill engineering and SPV divisions and stronger associate earnings were more than offset by higher tax expense and widened losses at the upstream plantation business.

• Moving into 2H16, we expect CBIP’s earnings to come in stronger, underpinned by relatively high orderbook of at least RM400m and RM200m for the oil mill engineering and SPV divisions. Besides, we note that CBIP’s financial standing remains strong, evidenced by net cash and net cash/share of RM123.4m and 20 sen/share at end 1H16.

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, pending further update with management post results season.

Rating

• BUY

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

• Negative – Share liquidity.

Valuation

• Maintain BUY with higher SOP-derived TP to RM2.41 (from RM2.35 previously) as we updated CBIP’s latest net cash position.

Source: Hong Leong Investment Bank Research - 29 Aug 2016