News

CB Industrial Product Holding (CBIP) announced that it has been awarded a contract from United Plantations Berhad (UTDPLT) to build a 60 MT/hour palm oil mill in Ulu Bernam, Malaysia. We gather that the total value of the contract is RM49.8m.

Comments

We are positive on the news as it should further strengthen CBIP’s order book. Note that this contract makes up 16% of our FY15E orderbook replenishment assumption.

Assuming EBIT margin of 22% for this RM49.8m project, this should translate into RM10.8m to CBIP’s bottom line. Our assumption is in line with FY14A’s palm oil mill equipment (POME) segment margin of 22%.

Outlook

The recent contract won has further boosted CBIP total outstanding orderbook to above RM500m. This means earnings visibility until 4Q15 for its POME division.

Forecast

Maintain our core earnings forecast for both FY15E (RM84m) and FY16E (RM105m) as we have factored in the potential contract win in our previous assumptions of RM325m-RM350m for FY15-16E.

Rating

Upgrade to MARKET PERFORM We upgrade our call to MARKET PERFORM (from UNDERPERFORM) in light of emerging value after its recent selldown. We believe CBIP holds better upside prospects than many plantation companies due to its orderbook-based earnings. However, volatile earnings in the retrofitting special purpose vehicles (RSPV) segment could pose a risk to earnings growth.

Valuation

No change to 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 +1.0SD valuation on 3-year historical average PER which we think is fair due to CBIP’s indirect exposure to the plantation sector which shelters earnings from CPO price volatility. Hence we think CBIP’s earnings growth should have better stability, especially considering its sizable outstanding orderbook above RM500m.

Risks

to Our Call

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

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

Lower-than-expected CPO prices.

Source: Kenanga Research - 9 Apr 2015