CBIP’s 1Q20 core net profit of RM12.3m (QoQ: -68.7%; YoY: +11.8%) accounted for 28.0-30.8% of our and consensus full-year estimates. We consider the results inline, as we expect earnings to weaken 2Q (on the back of plant suspension arising from MCO and lower palm product prices). Maintain FY20-21 core net profit forecasts, SOP -derived TP of RM0.83 and HOLD rating. Despite the improving CPO price sentiment (since early-May) will result in better upstream plantation earnings, we believe near-term earnings outlook remains murky, as (i) progress billing at palm oil mill equipment and engineering segment (particularly in Indonesia) will likely be impacted by Covid-19 pandemic in the near term, and (ii) profitability at biofuel/refinery will likely be impacted by wide palm oil-gas oil (POGO) spread. In our view, re-rating would only be warranted if CBIP manages to monetise its upstream plantation assets.

Within expectations. 1Q20 core net profit of RM12.3m (QoQ: -68.7%; YoY: +11.8%) accounted for 28.0-30.8% of our and consensus full-year estimates. We consider the results inline, as we expect earnings to weaken 2Q (on the back of plant suspension arising from MCO and lower palm product prices).

QoQ. 1Q20 core net profit declined by 68.7% to RM12.3m, as contribution from newly acquired biofuel/refinery plant was more than negated by seasonally lower project billings at palm oil equipment and engineering segment and palm oil output.

YoY. 1Q20 core net profit rose 11.8% to RM12.3m, as lower earnings at palm oil equipment and engineering segment (arising from movement restriction following Covid-19 outbreak) was more than mitigated by (i) improved performance at SPV segment, (ii) earnings contribution from newly acquired biofuel.refinery plant, and (iii) improved performance at plantation segment (on the back of higher palm product prices).

Orderbook. Orderbook at oil mill engineering segment declined to RM404m as at 31 Mar 2020 (from RM429m as at 31 Mar 2019), while orderbook at SPV segment increased to RM75m as at 31 Mar 2020 (from RM66m as at 31 Dec 2019).

Forecast. Maintain.

Maintain HOLD with unchanged SOP-derived TP of RM0.83. We maintain our HOLD rating on CBIP, with an unchanged sum-of-parts derived TP of RM0.83 (see Figure #2). Despite the improving CPO price sentiment (since early-May) will result in better upstream plantation earnings, we believe near-term earnings outlook remains murky, as (i) progress billing at palm oil mill equipment and engineering segment (particularly in Indonesia) will likely be impacted by Covid-19 pandemic in the near term, and (ii) profitability at biofuel/refinery will likely be impacted by wide palm oil-gas oil (POGO) spread. In our view, re-rating would only be warranted if CBIP manages to monetise its upstream plantation assets.

Source: Hong Leong Investment Bank Research - 1 Jul 2020