CBIP’s core net profit of RM64.0m in FY20 (+21.4%) beat expectations, accounting for 163.0-192.3% of our and consensus estimates, due mainly to better-than-expected margin at engineering segment, as well as JV and associate earnings (arising from high palm product prices). We raise our FY21- 22 core net profit forecasts by 14.5% and 7.6%, mainly to account for higher EBIT margin assumptions at mill engineering segment. We maintain our HOLD rating on CBIP, with a higher SOP-derived TP of RM1.14 (from RM1.09 earlier), to reflect our upward revision in our core net profit forecasts and latest net debt position. We remain doubtful on the sustainability of recent good performance into the medium term (particularly, beyond FY21), given the rising steel plate prices and depleting orderbook at mill engineering segment.

Beat expectations. 4Q20 core net profit of RM35.4m (QoQ: +145.0%; YoY: -10.2%) took FY20’s sum to RM64.0m (+21.4%). The results beat expectations, accounting for 163.0-192.3% of our and consensus estimates, due mainly to better-than-expected margin at engineering segment, as well as JV and associate earnings (arising from high palm product prices).

Exceptional items (EIs) in FY20. FY20 core net profit of RM64.0m was arrived after adjusting for (i) RM12.5m tax penalty imposed on SPV division, (ii) RM9.3m bad debts recovered, (iii) RM9.7m allowance for impairment loss on receivables, (iv) RM9.2m gain on disposal of PPE, (v) RM0.2 fair value gain on biological assets, and (vi) RM4.0m loss on foreign exchange.

Dividend. Declared second interim DPS of 2 sen (which entitlement and payment dates will be announced in due course), bringing total DPS for FY20 to 4 sen, translating to a dividend yield of 3.3%.

QoQ. 4Q20 core net profit surged 2.5x to RM35.4m (from RM14.5m in previous quarter), boosted by higher palm product prices, margin expansion at mill engineering segment, and reduced losses at biodiesel plant.

YoY. 4Q20 core net profit declined by 10.2% to RM35.4m, dragged mainly by lower earnings contribution from mill engineering segment, losses at biodiesel plant and SPV segment, but partly mitigated by higher palm product prices.

YTD. FY20 core net profit increased by 21.4% to RM64.0m, helped by (i) higher palm product prices (which resulted in narrower losses upstream plantation segment and turnaround at JV and associates), margin expansion at mill engineering segment, but partly negated by losses at SPV and biodiesel segments.

Orderbook. Orderboook at oil mill engineering segment declined further to RM300m as at 31 Dec 2020 (from RM313m as at 30 Sep 2020), while orderbook at SPV segment remained largely unchanged at RM74m as at 31 Dec 2020 (vs. RM71m as at 30 Sep 2020).

Forecast. We raise our FY21-22 core net profit forecasts by 14.5% and 7.6%, mainly to account for higher EBIT margin assumptions at mill engineering segment.

Maintain HOLD with higher SOP-derived TP of RM1.14. We maintain our HOLD rating on CBIP, with a higher SOP-derived TP of RM1.14 (from RM1.09 earlier), to reflect our upward revision in our core net profit forecasts and latest net debt position. Despite the positive surprise in results, we remain doubtful on the sustainability of recent good performance into the medium term (particularly, beyond FY21), given the rising steel plate prices and depleting orderbook at mill engineering segment.

Source: Hong Leong Investment Bank Research - 23 Mar 2021