News  CB Industrial Product Holding (“CBIP”) announced that it has been awarded a contract from Thai Eastern Trat Co. Ltd. (“TETC”) to build a 60 MT/hour palm oil mill in Mueang Trat, Thailand. We gather that the total value of the contract is RM31.3m.

Comments  This marks the first contract win of the year for CBIP. We are positive on the news as this further strengthen CBIP’s order book. Note that this contract makes up 10% of our FY15E orderbook replenishment assumptions.

 Assuming EBIT margin of 23%, this project should translate into RM6.6m to CBIP’s bottom line. Although our assumption is conservative compared to its FY13’s palm oil mill equipment (“POME”) segment margin of 26%, it is in line with its 9M14 POME margin at 23%.

Outlook  This contract further boosts CBIP’s total outstanding orderbook to above RM500m. This means earnings visibility until 4QFY15 for its POME division.

Forecast  Maintain our core earnings forecast for both FY14E (RM96m) and FY15E (RM84m) as we have factored in the potential contract win assumptions of RM300m-RM325m for FY14-15E. Note that the FY14E orderbook replenishment has been met.

Rating Maintain MARKET PERFORM

We expect contract flow from the POME to remain robust in the next two years. However, earnings growth could be limited due to irregular contract flow and volatile margins in the retrofitting special purpose vehicles (“RSPV”) segment.

Valuation  Maintain our TP of RM2.05 based on an unchanged Fwd. PE of 13x on FY15E core EPS of 15.8 sen.

 Our 13x Fwd. PE reflects a 30% premium to the FBM Small Cap Index (“FBMSC”) Fwd. PE of 10x which we think is justified by CBIP’s sizable outstanding orderbook above RM500m.

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

 Lower-than-expected margin for RSPV division.

 Lower-than-expected CPO prices.

Source: Kenanga