We consider 1H22 core net profit of RM43.8m (+18.3%) within expectations, as we anticipate better performance in 2H, as 4Q is seasonally stronger on the back of lumpy project recognition at palm oil mill engineering segment. Maintain earnings forecasts. We maintain our HOLD rating on CBIP with a lower sum-of parts TP of RM1.35 (from RM1.43 earlier) as we updated our valuation parameters (to reflect CBIP’s latest net debt position).

Within expectations. 2Q22 core net profit of RM13.6 (-54.9% QoQ; -29.4% YoY) took 1H22 core net profit to RM43.8m (+18.3%), accounting for 41.4-42.1% of our and consensus full-year estimates. We consider the results within expectations, as we anticipate better performance in 2H, as 4Q is seasonally stronger on the back of lumpy project recognition at palm oil mill engineering segment. Note that our core net profit of RM46.7m was arrived after adjusting for (i) RM1.5m bad debts recovered, (ii) RM0.2m disposal gain, (iii) RM0.5m fair value gain on biological assets, (iv) RM13.1m loss on derivative, and (v) RM1.5m forex gain.

QoQ. 2Q22 core net profit fell by 54.9% to RM13.6m, dragged mainly by weaker margin at oil mill engineering segment, losses at upstream plantation segment (as a result of export restriction in Indonesia). These were, however, partly mitigated by improved performance at SPV and downstream segments.

YoY. 2Q22 core net profit fell by 29.4% to RM13.6m, dragged mainly widened losses at upstream plantation segment, weaker performance at downstream segment, coupled with higher finance costs.

YTD. Core net profit increased by 18.3% to RM43.8m in 1H22, helped by improved contribution from oil mill engineering, upstream plantation and SPV segments.

Orderbook. Orderbook at oil mill engineering segment declined to RM308m as at 30 Jun 2022 (vs. RM345m as at 31 Mar 2022), while orderbook at SPV segment decline d further to RM103m as at 30 Jun 2022 (from RM125m as at 31 Mar 2022).

Forecast. Maintain.

Maintain HOLD with lower TP of RM1.35. We maintain our HOLD rating on CBIP with a lower sum-of-parts TP of RM1.35 (from RM1.43 earlier) as we updated our valuation parameters (to reflect CBIP’s latest net debt position). At RM1.39, CBIP is trading at FY22-24 P/E of 6.5x, 6.9x, and 7.8x, respectively. 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 - 25 Aug 2022