Period  4Q13/ FY13

Actual vs. Expectations CB Industrial Product’s (CBIP) FY13 core net profit (CNP)* of RM95m is better than expected as it makes up 109% of consensus forecast (RM87m) and 110% of our forecast (RM86m). We believe that the order replenishment for its “Palm Oil Mill Manufacturing” (POMM) division had been stronger than expected in 4Q13. For FY14, we expect more orders in this division, especially for palm oil mills with “Modipalm Continuous Sterilization Process” (MCSP) technology.

Dividends  As expected, no dividend was announced.

Key Results Highlights YoY, FY13 core net profit increased 11% to RM95m due to higher earnings contribution from both retrofitting special purpose vehicle (RSPV) division (PBT +160% to RM41m) and POMM division (PBT +6% to RM82m). However, earnings growth is capped by higher losses in plantation division due to lower CPO prices and still immature trees.

 QoQ, 4Q13 core net profit improved 44% to RM33m on better performance from RSPV division (PBT +157% to RM24m) and POMM division (PBT +36% to RM24m).

Outlook  We expect FY14 results to be steady, supported from the implementation of the projects secured in hand from both Palm Oil Mill Equipment (POM) division and SPV division.

Change to Forecasts FY14E core earnings is increased by 1% to RM98m (previously RM96m) while FY15E is also increased by 1% to RM100m (from RM99m), as we assumed higher contract replenishment.

Rating Maintain OUTPERFORM

We continue to like CBIP for the following reasons; (i) it is poised to capture strong demand for palm oil mills in 2014, (ii) steady margin improvement historically, and (iii) strong balance sheet with net cash of RM131m.

Valuation  We raised our TP to RM4.05 (previously: RM3.60) after applying higher Fwd. PE of 11x (from 10x) on higher FY14E core EPS of 36.9 sen (previously 36.0 sen). Our valuation of 11x Fwd. PER is in line with the latest Fwd. PE for small-cap stocks.

Risks to Our Call

 Lower-than-expected margin for POMM division.

 Lower-than-expected CPO prices.

Source: Kenanga