1Q22 core net profit of RM30.2m (-9.0% QoQ; +70.0% YoY) came in above expectations, accounting for 31.4% of consensus and our full-year estimates, due mainly to high-than-expected palm product prices. We raise our FY22-23 core net profit forecasts by 10.1-11.5%, mainly to incorporate higher CPO price assumptions (following the recent increase in our sector-wide CPO price assumptions). We maintain our HOLD rating on CBIP with higher sum-of-parts TP of RM1.52 (from RM1.43 earlier), as we updated our valuation parameters to reflect CBIP’s latest net debt position and share base.

Above expectations. 1Q22 core net profit of RM30.2m (-9.0% QoQ; +70.0% YoY) came in above expectations, accounting for 31.4% of consensus and our full-year estimates. We note that high-than-expected palm product prices were the key variance to our estimate. Note that core net profit of RM30.2m was arrived after adjusting for (i) RM13.1m loss on derivatives, (ii) RM0.8m bad debts recovered, (iii) RM0.1m gain on disposal, and (iv) RM0.4m fair value gain on biological assets.

QoQ. Core net profit shrunk by 9.0% to RM30.2m in 1Q22, dragged mainly seasonally lower project billing at oil mill engineering segment, and lower earnings contribution from SPV segment. These were however, partly mitigated by higher contributions from upstream plantation, JVs and associates, on the back of higher palm product prices.

YoY. Core net profit surged by 70.0% to RM30.2m in 1Q22, boosted by higher project billings at both oil mill engineering and SPV segments, and sharply higher palm product prices (which have in turn boosted contributions from upstream plantation segment, JVs, and associates).

Orderbook. Orderbook at oil mill engineering segment remained largely unchanged at RM345m as at 31 Mar 2022 (vs. RM341m as at 31 Dec 2021), while orderbook at SPV segment declined further to RM116m as at 31 Mar 2022 (from RM125m as at 31 Dec 2021).

Forecast. We raise our FY22-23 core net profit forecasts by 10.1-11.5%, mainly to incorporate higher CPO price assumptions (following the recent increase in our sector wide CPO price assumptions).

Maintain HOLD with higher TP of RM1.52. We maintain our HOLD rating on CBIP with higher sum-of-parts TP of RM1.52 (from RM1.43 earlier), as we updated our valuation parameters (to reflect CBIP’s latest net debt position) and share base. At RM1.49, CBIP is trading at FY22-24 P/E of 7.0x, 7.4x and 7.5x, respectively. Despite its commendable valuation, we see limited upside potential to CBIP’s share price, given the limited planted oil palm plantation landbank growth potential (which in turn translates to unexciting demand growth potential for CBIP’s oil mill engineering segment), and slow project replenishment at SPV segment. Re-rating catalysts to the stock include disposal of non-core assets, and/or project replenishment picks up momentum.

Source: Hong Leong Investment Bank Research - 31 May 2022