CB Industrial Product (“CBIP”) announced the partial disposal of shares in three plantation subsidiaries for a total cash consideration of RM37.8m. We are neutral as the area disposed was unplanted, and hence will not impact earnings. No change to FY16-17E CNP at RM100- 113m. Maintain OUTPERFORM with unchanged TP of RM2.34.

Sells stake in plantation subsidiaries. CBIP announced the partial disposal of shares in its sub-subsidiaries, namely 74% of PT Gumas Alam Subur (PT GAS) for IDR49.2m (RM15.1m), 74% of PT Kurun Sumber Rezeki (PT KSR) for IDR49.3t (RM15.1m), and 74% of PT Manyangan Jaya (PT MJ) for IDR25.0m (RM7.7m), totalling RM37.8m, to PT Jhonlin Agro Mandiri. Post-disposal, CBIP will retain a 20% stake in the three companies, with a put option to dispose the remaining 20% stake to the buyer at anytime within 3 years.

Streamlining operations. We are neutral on the disposal as we understand that while the subsidiaries had plantation licenses for c.46k ha, the area was greenfield (unplanted) land. Hence, we expect minimal earnings impact to the company. We understand that the proceeds will be used for further development of existing Indonesian operations. Post-disposal, we estimate CBIP’s Indonesian landbank at c.40k ha of which c.8k is planted area, with c.4k ha targeted to be planted in FY16.

Maintain FY16-17E CNP at RM100.4-112.9m as we expect minimal earnings impact from the one-off disposal. However, we adjust FY16E NP slightly to RM100.9m (<1% increase) reflecting the after-tax impact of RM0.7m expected gain on disposal.

Reiterate OUTPERFORM with TP maintained at RM2.34 based on unchanged average FY16-17E Core EPS of 20.0 sen and Fwd. PER of 11.7x. Our target PER is based on an unchanged +0.5SD, reflecting the robust Palm Oil Mill Equipment (POME) orderbook of c.RM500m. We maintain our OUTPERFORM call on CBIP as we like CBIP’s long-term earnings visibility and strong balance sheet with net cash of RM133.0m or 25.3 sen per share.

Source: Kenanga Research - 24 Jun 2016