CB Industrial Product (CBIP)?s FY16 CNP at RM90.0m was within consensus estimate (RM89.3m) at 101% but above ours (RM81.1m) at 111% due to better Plantation contribution and higher-than-expected RSPV segment margins. No dividend was announced, for full-year DPS of 6.0 sen, missing our 8.0 sen forecast. No change to FY17E CNP while we introduce our FY18E forecast. Maintain MARKET PERFORM call with unchanged TP of RM2.15.

FY16 meets consensus, beats our forecast. FY16 Core Net Profit (CNP*) at RM90.0m came in within consensus RM89.3m forecast at 101% while beating our RM81.1m estimate at 111% on the back of stronger Plantation contribution and better-than-expected Retrofitting Special Purpose Vehicles (RSPV) segment margins. No dividend was declared, however, with full-year DPS of 6.0 sen missing our 8.0 sen forecast. This implies a pay-out ratio of 33% and dividend yield of 2.8%.

Strong closing quarter. YoY, CNP declined 13% as Palm Oil Mill Equipment (POME) segment PBT weakened 9% on softer margins due to higher steel costs. RSPV segment margin also weakened 17% on higher operating expenses, in spite of a 28% increase in earnings. Plantation and associates? contribution, however, saw a substantial PBT improvement to RM20.0m (from RM6.5m) thanks to higher CPO prices and greater harvesting area, in addition to favourable forex movements. QoQ, CNP jumped 47% as POME PBT rose 40% on easing steel costs, while RSPV PBT improved 17% on a 132% jump in revenue due to higher project completion. Plantation and associates? PBT also performed well with a 1.4x PBT jump on better CPO prices and favourable forex movements.

Better order-book outlook. With supportive current CPO price levels, we think CBIP should begin to see greater interest in its POME segment, although we think margins could continue to see headwinds on high steel prices as we note that YTD HRC prices have hit c.RM2,700/MT from an average of c.RM2,200/MT in FY16. We expect RSPV contributions to normalise upon completion of recent projects. Meanwhile, Plantation associates and JV should continue to contribute positively in the near term on high CPO prices and higher maturing area.

Maintain FY17E CNP at RM95.3m as we introduce FY18E CNP at RM102.2m. However, we lower our dividend pay-out ratio to 40%, in line with the 5-year average, from 50% previously. This implies a FY17-18E DPS of 7.3-7.8 sen, for a decent dividend yield of 3.4-3.6%.

Maintain MARKET PERFORM with unchanged TP of RM2.15 with no change to our Fwd. PER of 12.0x applied to FY17E EPS of 17.9 sen. Our Fwd. PER of 12.0x implies +0.5SD valuation basis, reflecting the stable POME order-book position which provides c.2 years earnings visibility. We are overall neutral on existing businesses but are optimistic in the long run should more news flow be released on potential recurring income streams. Maintain MARKET PERFORM for now.

Risks to our call include higher-than-expected raw material cost, lower- than-expected orderbook replenishment, and weaker-than-expected Plantation, JVs and associates contribution.

Source: Kenanga Research - 23 Feb 2017