CBIP’s 1Q18 core net profit of RM17.6m (qoq: -15.6%; yoy: -21.8%) came in below expectations, accounting for only 19.6-20.1% consensus and our full-year forecasts. Key deviation against our forecast came largely from lower-than expected margin at the oil mill engineering division. We cut our FY18-20 net profit forecasts by 9.5-12.6%. We cut our SOP-derived TP by 18.8% to RM1.69 to reflect (i) the downward revision in our core net profit forecasts, (ii) roll forward of valuation base year to FY19 (iii) the latest net cash position, and (iv) lower P/E multiple of 8x (vs. 9x previously) for the engineering division to reflect our heightened concerns on the SPV division’s ability to replenish orderbook, which is dwindling fast). Maintain BUY

Below expectations. 1Q18 core net profit of RM17.6m (qoq: -15.6%; yoy: -21.8%) came in below expectations, accounting for only 19.6-20.1% consensus and our full year forecasts. Key deviation against our forecast came largely from lower-than expected margin at the oil mill engineering division.

QoQ. 1Q18 core net profit declined by 15.6% to RM17.6m, as narrowed losses at upstream plantation division and lower finance cost were more than offset by lower earnings contribution from oil mill engineering and SPV divisions, as well as weaker JV and associate contributions (on the back of lower palm product prices and seasonally lower FFB production).

YoY. 1Q18 core net profit declined by 21.8% to RM17.6m mainly on the back of lower contributions from oil mill engineering and SPV divisions, and weaker JV and associate contributions (on the back of lower palm product prices).

Orderbook. As at 31 Mar 2018, CBIP had orderbook of RM444m and RM74m at the oil mill engineering and SPV divisions, translating to orderbook cover ratios of 1.3x and 0.23x respectively.

Forecast. We cut our FY18-20 net profit forecasts by 9.5-12.6%, largely to account for (i) lower EBIT margin assumption at the oil mill engineering division, and (ii) lower new orderbook and EBIT margin assumptions at the SPV division (as we believe the new administration post GE-14 will post uncertainties to job flow at the SPV division).

Maintain BUY with lower SOP-derived TP of RM1.69. We cut our SOP-derived TP by 18.8% to RM1.69 (see Figure #2) to reflect (i) the downward revision in our core net profit forecasts, (ii) roll forward of valuation base year to FY19 (from FY18) (iii) the latest net cash position, and (iv) lower P/E multiple of 8x (vs. 9x previously) for the engineering division to reflect our heightened concerns on the SPV division’s ability to replenish orderbook, which is dwindling fast). Maintain BUY

Source: Hong Leong Investment Bank Research - 30 May 2018