CBIP has acquired a 70% stake in Gulf Lubes Sdn Bhd (a producer of palm based biofuel) for a total consideration of RM45.3m. We believe the price tag of the acquisition is low, compared to Genting Plantations’ acquisitions of biodiesel facilities few years ago. However, the acquisition of the biofuel facility may drag CBIP’s financial performance in the near to medium term, as it takes time to refurbish the facility and it remains to be seen if CBIP will secure enough offtake, given the glut of biodiesel capacities. In a separate announcement, CBIP received a qualified audit opinion from its external auditor as there has been a delay in completing the unaudited management accounts of the associates and JVs for audit due to the assessment and adoption of new Malaysia Financial Reporting Standards by the management of the associates and JV. The qualified opinion does not augur well on investors’ perception on CBIP. Our valuation on its associates and JV account for ~10% of our sum-of parts valuation. However, we note that we are valuing the associates and JV at RM15k per hectare, based on CBIP’s effective stakes. Maintain earnings forecasts, SOP-derived TP of RM1.01, and HOLD rating on the stock for now, pending more clarity from management.

NEWSBREAK

CBIP has acquired a 70% stake in Gulf Lubes Sdn Bhd (a producer of palm-based biofuel) through TPG Oil & Gas Sdn Bhd (an 80%-owned subsidiary, which was acquired in late-2018) for a total consideration of RM45.3m. The biofuel processing facility consist of 2 biodiesel processing plants with total annual production capacity of 350k mt and a refined, bleached and deodorised palm oil processing plant with annual production capacity of 250k mt in Port Klang Free Trade Zone, Pelabuhan Klang, Selangor. The facility has been left idle since its construction in 2009 and will require refurbishment before commencing its maiden production. In FY04/18, Gulf Lubes incurred a net loss of RM24.3m.

In a separate announcement, CBIP received a qualified audit opinion from its external auditor as there has been a delay in completing the unaudited management accounts of the associates and JVs for audit due to the assessment and adoption of new Malaysia Financial Reporting Standards by the management of the associates and JV.

HLIB’s VIEW

On the acquisition of biofuel facility. The price tag (RM65.3m, or RM109/mt, after assuming refurbishment cost of RM20m) seems low, compared to Genting Plantations’ acquisition of biodiesel facilities in 2001 and 2014. Minimal impact to balance sheet, the acquisition will result in CBIP’s net gearing increasing from 0.02x (as at 31 Dec 2018) to 0.08x. However, the acquisition of the biofuel facility may drag CBIP’s financial performance in the near to medium term, as it takes time to refurbish the facility. Besides, it remains to be seen if CBIP will secure enough offtake, given the glut of biodiesel capacities. Hence, we are at best neutral on the acquisition.

On qualified opinion by auditors. The qualified opinion does not augur well on investors’ perception on CBIP. Our valuation on its associates and JV account for ~10% of our sum-of-parts valuation (i.e. RM56.2m or 10 sen per share). However, we note that we are valuing the associates and JV at RM15k per hectare, based on CBIP’s effective stakes.

Forecast. Maintain for now, pending more clarity from management.

Maintain HOLD, TP: RM1.01. We maintain our HOLD rating on CBIP, with an unchanged SOP-derived TP of RM1.01 (see Figure 1).

Source: Hong Leong Investment Bank Research - 6 May 2019