While near-term prospects of CBIP replenishing its orderbook at both its oil mill engineering and SPV divisions will likely remain weak, we believe CBIP is worth a relook as value has emerged. At share price of RM1.30, the market is pricing CBIP’s effective planted plantation land bank (18,605 ha) at only RM8,350/ha, assuming (i) engineering division is valued at 8x FY19 earnings, (ii) net cash of RM42.7m remains, and (iii) zero value for its 20,000 ha of unplanted land bank. FY18-20 net profit forecasts cut by 8.2-24.4% to RM74.4m, RM60.9m and RM62.4m, respectively, to account for lower job replenishment assumptions for both oil mill engineering and SPV divisions. Maintain BUY rating with lower SOP-derived TP of RM1.55.

Weak near-term job replenishment prospects. We believe near-term prospects of CBIP replenishing its orderbook at both its oil mill engineering and SPV divisions (which are its bread and butter) to remain weak, on the back of (i) persistently low CPO price environment, which has in turn resulted in slower-than-expected orderbook replenishment at the oil mill engineering division, and (ii) ministerial position changes (post GE14 results), which will likely result in delays in new contract awards at the SPV division.

Value has emerged. Despite the weak near-term job replenishment prospects, we still see value in CBIP, given its (i) plantation assets in Sarawak (through associate and JV) and Kalimantan (32,000 ha, of which approximately 11,574 ha, or 36% has already been planted as at Mar-18), and (ii) net cash of RM42.7m (or 8 sen/share as at 31 Mar 18).

Upstream plantation assets are worth 54 sen/share. Based on our assumptions, we conservatively value CBIP’s land bank at RM15,000/ha (for planted area) and RM500/ha (for unplanted area), which is lower than current market valuations (of at least RM30,000/ha for planted area).

6 sen DPS will likely continue… Given its net cash of RM42.7m (or 8 sen/share as at 31 Mar 18) and absence of lumpy capex going forward. At current share price of RM1.30, the dividend translates to a decent yield of 4.6%.

Forecast. We cut our FY18-20 net profit forecasts by 8.2-24.4% to RM74.4m, RM60.9m and RM62.4m, respectively, largely to account for lower job replenishment assumptions for both oil mill engineering and SPV divisions.

Maintain BUY, TP: RM1.55. We lower our sum-of-parts TP on CBIP from RM1.69 to RM1.55 (see Figure #1), as we lower our core net profit forecasts and update our valuation parameters (in particularly its latest plantation land bank). Following recent share price retracement (which has retraced by 25% YTD), we believe CBIP is worth a relook as value has emerged. At share price of RM1.30, the market is pricing CBIP’s effective planted plantation land bank (18,605 ha) at only RM8,350/ha, assuming (i) engineering division is valued at 8x FY19 earnings, (ii) net cash of RM42.7m remains, and (iii) zero value for its 20,000 ha of unplanted land bank.

Source: Hong Leong Investment Bank Research - 20 Jun 2018