Journey to Wealth
CBIP - Cheap valuations BUY
- Maintain BUY on CBIP (CB Industrial Product Holding) with an unchanged fair value of RM3.00/share.
- Our fair value is based on an FY13F PE of 9x. We have raised CBIP's FY13F EPS forecast by 11% to account for a higher EBIT margin.
- CBIP's valuations are cheap. The group is currently trading at an FY13F PE of 7.9x and FY14F PE of 7.6x.
- In the past seven years, CBIP's PE band ranged from a low of 3x to a high of 20x. Average PE was 10x.
- CBIP's profitability in FY13F is expected to be underpinned by a growing construction order book and low steel costs.
- EBIT margin is envisaged to be sustained by mechanical and electrical contracts, which are more profitable than turnkey contracts.
- We have assumed that CBIP would secure RM250mil contracts in FY13F versus an estimated RM230mil in FY12F. New contracts are expected to come from existing customers in Malaysia and Indonesia.
- Unbilled construction order book stood at RM329mil as at end-September 2012. This is about 1.0x of CBIP's FY12F contracting/manufacturing revenue.
- Steel costs are expected to remain low. According to Bloomberg, cold-rolled coil steel prices averaged US$676/short tonne in 4QFY12, 11% lower than the average of US$760/short tonne in 4QFY11.
- Plantation division is anticipated to start contributing from FY15F/FY16F onwards. New plantings are estimated at 5,000ha in FY13F. Planting cost is forecast at US$6,000/ha.
- Currently, CBIP has plantation landbank amounting to about 37,273ha in Central Kalimantan. Plantable landbank is estimated at 33,000ha or 89% of total landbank.
- CBIP's balance sheet is clean. As at end-Sept 2012, the group was in a net cash of RM167.4mil.
- In spite of the healthy cash, we believe that CBIP would be conserving cash for its expansion in plantation. Hence, we have forecast a lower gross DPS of 12 sen for FY13F (FY12F: 15 sen), which implies a yield of 4.6%.
Source: AmeSecurities
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
