News  CB Industrial Product Holding (CBIP) has been awarded a contract to build a Continuous Sterilisation (CS) palm oil mill in Central Kalimantan, Indonesia. We gather that the total value of the contract is RM33m with a capacity of 60mt/hour. More notable is that the contract is from PT Windu Nabatindo Abadi, a subsidiary of PT Bumitama Gunajaya Agro (PBGA).

 PBGA is a 90% subsidiary of Bumitama Agri. Ltd. (Bumitama) which is listed in Singapore with a market cap of SGD1.74b.

Comments  We are positive on this maiden CS palm oil mill contract awarded to CBIP by Bumitama. In our view, this could lead to future contracts from Bumitama for its other maturing estates. As it is, 75% of Bumitama palm oil estates are still immature with an average palm oil tree age of 5 years which means a need for more mills in the next 2 years as the trees matures.

 Assuming EBIT margin of 23% for this RM33m project, this should translate into RM7.0m to CBIP’s bottom line. Our assumptions are considered fair as compared to CBIP POMM division margin of 23.3% in FY12 and 24.5% in 1H13.

Outlook  This recent contract won further boosted CBIP’s total outstanding orderbook closer to the RM500m mark providing earnings visibility until mid-FY15 for its palm oil mill manufacturing (“POMM”) division.

Forecast  Maintain core earnings for FY13E at RM86m as this contract is awarded in 4Q13 and we believe work would only start in 2014. Our FY14E core earnings are also unchanged at RM95m as we have previously incorporated the possibility of such a contract win in 4Q13 into our order replenishment assumption.

Rating   Maintain OUTPERFORM

Valuation  Maintain our Target Price of RM3.18 based on an unchanged Fwd. PER of 9.0x on CY14E EPS of 35.4sen.

Risks to Our Call  Lower than expected contract win for its POMM division. 

Source: Kenanga