News  CB Industrial Product Holding (CBIP) announced that it has been awarded a contract from Extraceite S.A (Extraceite) to build a 22.5 MT/hour palm oil mill in Guatemala. We gather that the total value of the contract is USD5.85m or RM18.8m and that the mill can be upgraded to 45 MT/hour.

Comments  We are positive on the news as this should further strengthen CBIP’s order book. Assuming EBIT margin of 23% for this RM18.8m project, this should translate into RM4.0m to CBIP’s bottom line. Our assumptions are considered conservative as compared to its palm oil mill manufacturing (POMM) division margin of 25.7% in FY13.

Outlook  The recent contract won should further boost CBIP total outstanding orderbook to above RM500m. This means earnings visibility until 4Q15 for its 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 previous assumption.

Rating Maintain OUTPERFORM

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

Valuation  Increase our Target Price to RM4.90 (from RM4.80) after rolling over to FY15E EPS of 37.6 sen. Our Fwd. PER of 13.0x is unchanged and reflects a 2.0x premium against Small Cap Fwd. PE of 11.0x. As CBIP’s share liquidity and market cap have exceeded RM1.1b, the stock may attract the attention of larger funds.

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