CBIP’s 2Q20 core net profit of RM1.7m (QoQ: -85.8%; YoY: +53.7%) took 1H20 core net profit to 14.1% (+15.7%). The results missed our estimate, made up of only 31.9% of our full-year estimate. Key deviations against our estimate include (i) weaker-than-expected upstream plantation performance and (ii) lower-than expected contribution from mill engineering segment. Proposed 1st interim DPS of 2.0 sen (which will be paid on a date to be announced later). We lower our core FY20-21 core net profit forecasts by 19.2% and 4.6%, mainly to account for higher production cost assumption at upstream plantation segment. Despite the downward revision to our core net profit forecasts, we maintain our HOLD rating on CBIP, with an unchanged sum-of-parts derived TP of RM0.83, as our valuation on upstream plantation segment is based on EV/ha.

Weaker-than-expected. 2Q20 core net profit of RM1.7m (QoQ: -85.8%; YoY: +53.7%) took 1H20 core net profit to 14.1% (+15.7%). The results missed our estimate, made up of only 31.9% of our full-year estimate. Key deviations against our estimate include (i) weaker-than-expected upstream plantation performance and (ii) lower-than expected contribution from mill engineering segment.

Dividend. Proposed 1st interim DPS of 2.0 sen (which will be paid on a date to be announced later).

QoQ. Core net profit declined by 85.8% to RM1.7m in 2Q20, dragged mainly by (i) losses at upstream plantation segment (which was in turn due to lower palm product prices and higher production cost) and losses incurred at biofuel segment, but partly mitigated by higher contribution from mill engineering and SPV segments.

YoY. Core net profit rose 53.7% to RM1.7m in 2Q20, as losses incurred at biofuel segment and the absence of tax writeback were more than mitigated by improved earnings at oil mill engineering and SPV segments, as well as lower reduced losses at upstream plantation segment.

YTD. 1H20 core net profit rose 15.7% to RM14.1m, as lower earnings contribution from oil mill engineering segment and losses at biofuel segment were more than mitigated by reduced losses at upstream plantation segment and improved performance at SPV segment.

Orderbook. Orderbook at oil mill engineering segment declined further to RM327m as at 30 Jun 2020 (from RM404m as at 31 Mar 2020), while orderbook at SPV segment remained unchanged at RM75m.

Forecast. We lower our core FY20-21 core net profit forecasts by 19.2% and 4.6%, mainly to account for higher production cost assumption at plantation segment.

Maintain HOLD with unchanged SOP-derived TP of RM0.83. Despite the downward revision to our core net profit forecasts, we maintain our HOLD rating on CBIP, with an unchanged sum-of-parts derived TP of RM0.83 (see Figure #2), as our valuation on upstream plantation segment is based on EV/ha (which is unaffected by the changes to our earnings assumption at the segment). 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 Sept 2020