CBIP’s core net profit of RM17.7m in 1Q21 (QoQ: -50.0%; YoY: +43.8%) beat expectations, accounting for 30.2-30.4% of our and consensus full-year estimates. The positive earnings surprise was due mainly to better-than-expected margin at oil mill engineering segment. We raise our FY21-23 core net profit forecasts by 6.3-7.0%, mainly to account for higher EBIT margin assumptions at oil mill engineering segment. We maintain our HOLD rating on CBIP, with a higher sum-of-parts TP of RM1.20 (from RM1.16 earlier), to reflect the 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.

Beat expectations. 1Q21 core net profit of RM17.7m (QoQ: -50.0%; YoY: +43.8%) beat expectations, accounting for 30.2-30.4% of our and consensus full-year estimates. The positive earnings surprise was due mainly to better-than-expected margin at oil mill engineering segment.

Exceptional items in 1Q21. Core net profit in 1Q21 was arrived after adjusting for (i) RM0.24m bad debt recovered and reversal of impairment loss on receivables, (ii) RM0.38m loss on derivative, and (iii) RM0.97m forex gain.

QoQ. Core net profit fell 50.0% to RM17.7m in 1Q21, due mainly to seasonal effect at oil mill engineering segment (we note that 4Q is traditionally a stronger quarter for segment due to project billing cycle), and lower associate and JV contributions (on the back of lower FFB output).

YoY. Core net profit surged 43.8% to RM17.7m, boosted by (i) turnaround at upstream plantation segment, JV and associates (as a result of significantly higher realised palm product prices, which more than mitigated lower palm output), and (ii) better margin at oil mill engineering segment.

Orderbook. Orderbook at oil mill engineering segment remained on downtrend, to RM289m as at 31 Mar 2021 from RM300m a quarter ago (as a result of border closure, which resulted in difficulty in securing new contracts in Indonesia). Orderbook at SPV segment, on the other hand, declined marginally to RM70m as at 31 Mar 2021 (from RM74m as at 31 Dec 2021).

Forecast. We raise our FY21-23 core net profit forecasts by 6.3%, 6.6% and 7.0%, respectively, mainly to account for higher EBIT margin assumptions at oil mill engineering segment.

Maintain HOLD with higher TP of RM1.20. We maintain our HOLD rating on CBIP, with a higher sum-of-parts TP of RM1.20 (from RM1.16 earlier), to reflect the 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 - 11 Jun 2021