Period

4Q15/FY15

Actual vs. Expectations

CB Industrial Product (CBIP)’s FY15core net profit (CNP*) of RM99.1m beat expectations at 121% of consensus forecast (RM82.0m) and 123% of our forecast (RM80.3m).

This was largely due to margin expansion on favourable exchange rates in the Palm Oil Mill Equipment (POME) segment and better cost management in the Retrofitting Special Purpose Vehicle (RSPV) segment.

Dividends

A special dividend of 4.0 sen was announced for FY15A DPS of 10.0 sen, above our 6.0 sen dividend forecast. This implies a 53% payout ratio and 4.7% dividend yield for the year.

Key Results Highlights

YoY,FY15 CNP rose 4% on stronger POME PBT (+24% to RM114.2m) due to favourable exchange rates, particularly seen in 4Q15. RSPV segment also recorded stronger PBT (+28% to RM25.8m) on better cost management. Note that FY15 tax was 26% compared to 9% in FY14 due to expiry of pioneer tax status; hence, PBT improvement (+28% to RM139.6m) was stronger than CNP improvement.

QoQ,4Q15 CNP jumped 242% as POME PBT rose 135% to RM44.1m on better forex rates, while RSPV PBT rose 562% on cost management and higher project delivery.

Outlook

We are optimistic on the POME segment as rising CPO prices should improve orders. Meanwhile, the strong USD should benefit existing sales as we gather that c.40% of CBIP’s orderbook is denominated in USD.

Change to Forecasts

No change to our FY16E forecasts as we introduce our FY17E CNP of RM125.1m.

Rating

Maintain OUTPERFORM We believe CBIP holds good upside potential with better earnings visibility due to its orderbook-based earnings. We also like CBIP for its strong balance sheet with net cash of RM177.2m or 33.7 sen per share.

Valuation

No change to our TP of RM2.49 as we maintain a Fwd. PER of 11.7x on FY16E EPS of 21.3 sen. Our target Fwd. PER of 11.7x is based on +0.5SD, reflecting the POME segment’s robust orderbook status with earnings that are less volatile compared to the plantation sector

Risks to Our Call

Lower-than-expected margin for POME division.

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

Source: Kenanga Research - 25 Feb 2016