Period

1Q15

Actual vs. Expectations

CB Industrial Product (CBIP)’s 1Q15 core net profit (CNP*) of RM20.5m was within expectations, at 24% of both consensus (RM85.3m) and our forecast (RM84.4m).

Dividends

No dividend was announced, as expected.

Key Results Highlights

YoY, 1Q15 CNP was 14% lower mainly on poor Retrofitting Special Purpose Vehicle (RSPV) segment’s PBT (-32% to RM1.6m) due to lower project billing. However, this was partly offset by better PBT in its Palm Oil Mill Equipment (POME) segment (+5% to RM24.9m) on improved project completion and billing.

QoQ, 1Q15 CNP declined 19% to RM20.5m on significantly weaker RSPV segment’s PBT (-85%) due to the reasons noted above.

Outlook

We expect FY15 CNP to decline YoY to RM84m as we understand that its pioneer status tax exemption expires this year. However, we are optimistic on CBIP’s midterm outlook due to the strong pace of orderbook replenishment at more than RM200m YTD, or 44% of our FY15 orderbook replenishment of RM450m. This will provide good earnings visibility up to late-2016.

Change to Forecasts

No change to our FY15-16E earnings forecasts.

Rating

Maintain OUTPERFORM We believe CBIP holds better upside prospects than many plantation companies due to its orderbook-based earnings. We also like CBIP for its strong balance sheet with net cash of RM117.9m or 22.0 sen per share.

Valuation

Maintain our TP of RM2.46 based on an unchanged Fwd. PER of 13.0x on average FY15-16E Core EPS of 19.0 sen. Our 13.0x Fwd. PE implies a +1.0SD valuation on 3-year historical average PER which is justified by CBIP’s lower earnings volatility compared to the plantation sector, and strong orderbook status.

Risks to Our Call

Lower-than-expected margin for POME division.

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

Source: Kenanga Research - 29 May 2015