CB Industrial Product (CBIP) announced that it has received a Letter of Acceptance to build a 45/90 TPH palm oil mill in Kalimantan, Indonesia. We are positive on the announcement which brings its Palm Oil Milling Equipment (POME) order-book to above RM500.0m. No change to our FY16-17E CNP. Maintain MARKET PERFORM with slightly higher TP of RM2.15 (from RM2.10) based on updated Fwd. PER of 12.0x.

Received LOA for Kalimantan mill. CBIP announced that it has received a Letter of Acceptance (LOA) from PT. Lifere Agro Kapuas (LAK), a subsidiary of United Malacca Berhad (UMCCA) to build a new 45/90 TPH palm oil mill in Kalimantan, Indonesia for LAK. We gather that the value of the contract is separated into an imported portion at RM17.2m and a local portion at IDR149.2b (RM49.8m). The total value of the contract is RM67.0m.

First win of the year. We are positive on the announcement as the first major order-book win announced for the year. We expect this to bring its outstanding Palm Oil Milling Equipment (POME) order book to above c.RM550.0m which provides earnings visibility over the next two years. The project value makes up c.12% of our FY17E order-book replenishment assumption of RM550m. Assuming an EBIT margin of 21% for the RM67.0m project, this translates to bottom-line contribution of RM14.1m. Our assumption is in line with 9M16 POME margin of 21%.

Awaiting fresh catalysts. As discussed in our previous Company Update report (published 16 Dec 2016), we believe CBIP could see some positive developments in 2017 with potential recurring income streams from a build-operate-transfer model for its POME segment and maintenance contracts in the Retrofitting Special Purpose Vehicles (RSPV) segment. Plantation earnings should also do well in 1H17 thanks to very supportive CPO prices. However, steel price volatility continues to pose a short-term risk to margins.

Maintain FY16-17E CNP of RM81.1-95.3m as the award falls within our order-book replenishment assumptions.

Reiterate MARKET PERFORM with higher TP of RM2.15 (from RM2.10) based on latest Fwd. PER of 12.0x applied to FY17E EPS of 17.9 sen. Our target PER is updated to 12.0x with an unchanged 3-year +0.5SD valuation basis, which reflects stable POME order- book position giving good long-term earnings visibility. We would consider upgrading our call or TP once further news on recurring income streams is confirmed. With an overall neutral outlook on existing businesses but potential upgrade catalyst in the mid-term, we reiterate our MARKET PERFORM call for now.

Source: Kenanga Research - 20 Feb 2017