Period  3Q14/9M14

Actual vs. Expectations CB Industrial Product (CBIP)’s 9M14 core net profit (CNP)* of RM69.9m came in within expectations, making up 71% and 73% of our and consensus forecasts, respectively.

Dividends  Single-tier dividend of 3.0 sen announced is within expectations.

Key Results Highlights YoY, 9M14 CNP rose 15% to RM69.9m due to improved earnings in the palm oil mill equipment (POME) segment (PBT increased 17% to RM67.5m). However, the retrofitting special purpose vehicle (RSPV) segment saw lower earnings (PBT -42% to RM10.1m). The POME segment improved on better project billing while the RSPV division was weaker due to lower project completion and billing.

 QoQ, 3Q14 CNP improved 19% to RM25.0m due to significant improvement in RSPV earnings from RM1.7m to RM6.2m due to increased project implementation during the quarter. This more than offset lower earning from POME (PBT -7% to RM21.1m).

Outlook  Management expects satisfactory performance in FY14E on the progress of projects implementation. We expect FY14E CNP to grow slightly by 1% to RM96.0m before increasing more by 3% in FY15E to RM99.0m.

Change to Forecasts We maintain our FY14E-FY15E CNP of RM96.0m - RM99.0m.

 We have lowered our FY14E CPO price assumption to RM2,400/MT (from RM2,500/MT) but the impact to bottom line is negligible. Note that lower CPO prices will only affect earnings from associates and joint ventures, which altogether only accounted for 2% of earnings in 2013.

 We are likely to trim our FY15E CPO prices assumption too, but the impact to bottom line should be negligible due to the same reasons stated above.

Rating Maintain MARKET PERFORM

We expect contract flow from its POME division to be strong in the next two years. However, volatile earning from RSPV division is likely to keep earnings growth limited.

Valuation  Maintain our TP of RM2.43 based on unchanged Fwd. PE of 13x on FY14E core EPS of 18.1 sen.

 The 13x Fwd. PE is used based on 2x premium to Small Cap Fwd. PE of 11x as CBIP’s market cap is currently at RM1.2b and hence deserve premium valuation.

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

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

Source: Kenanga