- Complete milling solutions provider. Dolphin International Berhad (DOLPHIN) was established in 1992 and is being listed today. DOLPHIN provides a wide range of products and solutions for the palm oil milling machinery sector, including mill automation, software and other turnkey solutions for new and existing mills. An amount of RM31.3m was raised based on the public issue of 46.0m new shares of RM0.68 each, implying a market cap of RM119.7m. Details of the utilisation proceeds are overleaf.

- Capturing demand for palm oil mills. We gathered that there are about 1,000 existing palm oil mills in Indonesia and Malaysia, with more coming up in South America and Africa. DOLPHIN¡¯s existing clientele includes SALCRA, Sime Darby (SIME), Genting Plantations (GENP) and Boustead Plantations (BPLANT). We think DOLPHIN¡¯s closest competitor is CB Industrial Product (CBIP) as both companies provide palm oil mill engineering and milling equipments to plantation companies. Other competitors include Boilermech (BOILERM) and Muar Ban Lee (MBL) that provide palm oil milling equipments. We further understand that DOLPHIN is also one of CBIP¡¯s parts suppliers. Dolphin and CBIP¡¯s business model differ in that CBIP is a turnkey contractor for mills using its ¡°Modipalm Continuous Sterilisation¡± system, while Dolphin is a full-service solutions provider involved in every part of the milling process. Although their client base is similar, we are not overly concerned due to the large demand for mills in the industry.

- Strong orderbook. Management mentioned that its outstanding orderbook is at RM176m, which should last until FY16. We gather that 54 of its current 114 customers (47%) are recurring customers. With a mix of new and recurring revenue, we assume an annual orderbook replenishment of RM170m (RM150m from the provision of solutions and RM20m from sale of milling systems). Note that we expect FY15E revenue to increase substantially to RM183m (+75%) due to the recognition of a RM157m contract this year, while FY16E could be lower at RM151m (-17%) due to our conservative orderbook assumption.

- Undemanding valuation. We think valuations are attractive as DOLPHIN¡¯s FY16E Fwd PER of 5.3x trades at a 39% discount to FBMSC¡¯s 8.7x. Compared to its peers, the FY16E Fwd PER trades at a 66% discount to CBIP, BOILERM and MBL¡¯s average PER of 15.4x. Although Dolphin¡¯s market cap (RM120m) and orderbook size is relatively smaller than its peers, we believe the discount is not justified due to DOLPHIN¡¯s solid orderbook position and strong operating margin (FY14A at 18% against peers¡¯ 14%).

- Trading Buy at Fair Value of RM0.78. We derive our Fair Value based on an undemanding 6.1x Fwd PER on FY16E EPS of 12.8 sen, which is at a 30% discount to FBMSC FY16E Fwd PER. We think the discount is justified by DOLPHIN¡¯s small market cap at RM120m compared to FBMSC¡¯s average market cap of RM650m. At this TP, the stock offers a decent Total Return of 18.4% (upside of 14.9%, dividend yield 3.5%).

Source: Kenanga Research - 9 Jun 2015