CBIP’s core net profit of RM52.7m in FY19 (+16.6%) beat expectations, accounting for 238.5% of consensus and our estimates. The better-than expected set of performance was due mainly to better-than-expected margin at the palm oil mill engineering segment. We raise our FY20-21 core net profit forecasts by 20.3-25.4% as we take into account of CBIP’s latest orderbook and raise our EBIT margin assumption at oil mill engineering segment. Post upward adjustment to our core net profit forecast and update on its latest net debt, we upgrade our rating on CBIP to BUY (from Hold earlier) with a higher SOP derived TP of RM1.15 (vs. RM1.03 earlier).

Beat expectations. 4Q19 core net profit of RM39.4m (vs. core net profit of RM1.1m in 3Q19 and core net loss of RM7.1m in 4Q18) took FY19 core net profit to RM52.7m (+16.6%). The results beat expectations, accounting for 238.5% of consensus and our estimates. The better-than-expected set of performance was due mainly to better than-expected margin at the palm oil mill engineering segment.

Exceptional items (EI). During the quarter, we adjusted for RM16.9m worth of EIs, which include, amongst others, (i) RM30.3m impairment loss on receivables and associates, (ii) RM9.0m disposal gain on PPE, (iii) RM3.8m forex gain.

QoQ. Core net profit multiplied to RM39.4m in 4Q19 (from RM1.1m 3Q19), boosted mainly by sharply higher contribution from palm oil mill engineering segment (which was in turn driven by higher progress billing and margin expansion), this more than offset higher loss contribution from upstream plantation segment.

YoY. 4Q19 performance turned around with a core net profit of RM39.4m (from a core net loss of RM7.1m in 4Q18), due mainly to sharply higher contribution from palm oil mill engineering segment (which was in turn driven by higher progress billing and margin expansion) and improved performance at SPV segment, which more than mitigated higher loss contribution from upstream plantation segment.

YTD. FY19 core net profit rose 16.6% to RM52.7m, as higher loss contribution from upstream plantation segment and lower earnings at SPV segment were more than mitigated by higher earnings contribution from palm oil mill engineering segment (which was in turn driven by higher progress billing and margin expansion) and lower tax expense (arising mainly from lower contribution from SPV segment, which is 51% - owned by CBIP).

Orderbook. Orderbook at oil mill engineering segment increased to RM429m as at 31 Dec 2019 (from RM385m as at 30 Sep 2019), while orderbook at SPV segment declined to RM66m as at 31 Dec 2019 (from RM74m as at 30 Sep 2019).

Forecast. We raise our FY20-21 core net profit forecasts by 20.3-25.4% as we take into account of CBIP’s latest orderbook and raise our EBIT margin assumption at oil mill engineering segment.

Upgrade to BUY with higher SOP-derived TP of RM1.15. We upgrade our rating on CBIP to BUY (from Hold earlier) with a higher SOP-derived TP of RM1.15 (vs. RM1.03 earlier) to reflect higher core net profit assumptions and its latest net debt position.

Source: Hong Leong Investment Bank Research - 28 Feb 2020