Results

• Below… 3Q17 core net profit of RM16.7m (qoq: -32.8%; yoy: 21.2%) took 9M17 core net profit to RM64.1m (+9.8%), accounting for 60.3-63.7% of our and consensus full-year estimates. While 4Q is usually the strongest quarter (on the back of lumpy project billing), we consider the results below expectations.

Deviations

• Slower-than-expected project replenishment at the palm oil mill engineering division.

Dividend

• Proposed 2 nd interim DPS of 3 sen, bringing total DPS YTD to 6 sen.

Highlights

• YoY & QoQ… 3Q17 core net profit declined by 32.8% qoq and 21.2% yoy to RM16.7m, dragged mainly by: (1) Slow project replenishment at the oil mill engineering division (YTD, new contracts secured was ~20% lower than last year), which has in turn resulted in lower PBT at the division; and (2) Higher production cost at the SPV division.

• YTD… 9M17 core net profit rose 9.8% to RM64.1m, as lower earnings contribution from the oil mill engineering division (arising from lower revenue recognition) was more than mitigated by higher SPV earnings and improved JV and associate contributions (arising from improved palm production).

• Orderbook… As at 30 Sep 2017, orderbook at the palm oil mill engineering and SPV divisions stood at RM424m and RM242m, translating to orderbook cover ratios of 1x and 1.6x respectively.

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 lower our FY17-19 core net profit forecasts by 14.6- 17.4% respectively, largely to account for slower orderbook replenishment at the oil mill engineering division.

Rating

BUY ( ↔ )

• Despite recent earnings setback, we continue to like CBIP for its undemanding valuations (in particularly, following recent share price correction) and health balance sheet. At current share price of RM1.81, CBIP is trading FY17-18 P/E of 10.5x and 10.9x respectively.

Valuation

• Post downward earnings adjustments, we lower our SOP-derived TP on the stock by 14.1% to RM2.13 (see Figure 4).

Source: Hong Leong Investment Bank Research - 29 Nov 2017