Period  1Q14

Actual vs. Expectations CB Industrial Product’s (CBIP) 1Q14 core net profit (CNP)* of RM21m is within expectation as it makes up 21% of both consensus forecast (RM100m) and ours (RM98m). Note that historically 1Q is usually lower as it makes up only 19% to 22% of full-year earnings in the past 3 years.

Dividends  As expected, a 1st interim dividend of 5.0 sen was announced.

Key Results Highlights YoY, 1Q14 CNP increased 16% to RM21m due to higher earnings from palm oil mill equipment (POME) division (PBT +29% to RM24m). However, earnings growth is capped by lower earnings from retrofitting special purpose vehicle (RSPV) division (PBT -57% to RM2m). POME division benefited from improvement in project billing and better PBT margin at 26.7% (against 1Q13’s 25.4%). However, RSPV division is weaker due to lower project implementation and completion.

 QoQ, 1Q14 CNP declined 37% to RM21m as earnings from RSPV division declined significantly (PBT -90% to RM2m) due to reason as stated above.

Outlook  Near-term outlook should be positive as CBIP is expected to win more contracts to build palm oil mills. This should bode well for POME division, which commands 64% of total PBT in FY13. Admittedly RSPV division is having fewer contracts compared to last year but this division’s earnings contribution is smaller at only 32% of total PBT in FY13.

Change to Forecasts We maintain our FY14E CNP of RM98m. We also maintained our FY15E CNP of RM100m.

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 RM132m.

Valuation  Maintain our TP of RM4.80 based on unchanged Fwd. PE of 13x on FY14E core EPS of 36.9 sen.

Risks to Our Call Lower-than-expected margin for POMM division.

 Lower-than-expected sales or margin from RSPV division.

 Lower-than-expected CPO prices.

Source: Kenanga