News  CB Industrial Product Holding (CBIP) has announced that it has been awarded a contract from Sime Darby (SIME) to build a 30 MT/hour Continuous Sterilisation (CS) palm oil mill in Liberia. We gather that the total value of the contract is RM38.5m.

Comments  We are positive on the news as this should further strengthen CBIP’s order book. Assuming EBIT margin of 23% for this project, this should translate into RM8.9m to CBIP’s bottom line. Our assumptions are considered conservative as compared to CBIP’s POMM division margin of 25.7% in FY13.

Outlook  This contract should further boost CBIP’s total outstanding orderbook to an estimated level of RM500m, which means earnings visibility until 3QFY15 for its palm oil mill manufacturing (POMM) division.

Forecast  Maintain our core earnings forecast for both FY14E (RM98m) and FY15E (RM100m) as we have factored in the potential contract win in our assumption.

Rating Maintain OUTPERFORM

We continue to like CBIP as it is poised to capture strong demand for palm oil mills in 2014 and for its steady margin improvement historically.

Valuation  Increased our Target Price to RM4.80 based on a higher Fwd. PER of 13.0x (from 12.0x) on CY14E EPS of 36.9 sen. Our Fwd. PER of 13.0x reflects a 2.0x premium against Small Cap Fwd. PE of 11.0x.

As CBIP’s liquidity and market cap have exceeded RM1.2b, the stock may attract the attention of larger funds in the near-term.

Risks  Lower-than-expected contract win for its POMM division.

 Lower-than-expected margin for retrofitting special purpose vehicle (RSPV) division.

 Lower-than- expected CPO prices.

Source: Kenanga