CB Industrial Product (CBIP) 1Q17 Core Net Profit (CNP*) at RM24.5m came within expectations, coming in at 24% of consensus estimate and 26% of ours. An interim dividend of 3.0 sen was announced, in line with historical trends. No change to our FY17-18E CNPs. Maintain MARKET PERFORM with slightly higher TP of RM2.20 (from RM2.15) as we roll forward our valuation base year to average FY17-18E (from FY17E).

1Q17 meets expectations. CBIP recorded 1Q17 CNP of RM24.5m, which came in within expectations at 24% of consensus RM100.3m forecast, and 26% of our RM95.3m estimate. An interim dividend of 3.0 sen was announced, in line with previous years? trends.

All-around improvement YoY, as 1Q17 CNP rose 74% on higher Retrofitting Special Purpose Vehicles (RSPV) segment PBT (+2.4x) on higher project implementation, thanks to orders secured in late- 2016. Meanwhile, Palm Oil Mill Equipment (POME) segment?s PBT increased 19% on lower forex losses, excluding which the segment PBT was relatively flat (+2%) at RM22.9m. Plantation segment?s losses narrowed to RM0.9m (from RM7.2m) on better production and prices, while associates and jointly controlled entities? posted a combined PBT of RM6.2m, well above 1Q16 RM1.0m loss before tax (LBT), thanks to better CPO prices. QoQ, CNP softened 28% on lower POME (-31%) and RSPV (-51%) contribution due to lower billings, while Plantation saw a reversal into losses due to seasonally lower production. However, associates and JV combined contribution rose 16% on the back of higher CPO prices.

Good order-book outlook. We believe with short-term decent CPO prices and a rising production outlook, cash flows should improve, supporting interest in the POME segment. However, volatile steel prices may continue to suppress margins in the medium term. Meanwhile, we expect RSPV contributions to normalize in 2-3Q on completion of recent projects. Plantation segment, including associates and JV, should continue to see good performance on production improvements, although a softer CPO price outlook in 2H17 could pose upside risk.

Maintain FY17-18E CNP at RM95.3-102.2m with results coming in line with our estimates.

Reiterate MARKET PERFORM with higher TP of RM2.20 (from RM2.15) as we roll forward our valuation base year to average FY17- 18E (from FY17E) for higher applied EPS of 18.8 sen (from 17.9 sen). Our Fwd. PER is unchanged at 12.0x, with valuation basis maintained at +0.5SD reflecting the stable POME order-book position with around two years of earnings visibility. While existing business? outlook is overall neutral, news of potential recurring income streams could be a positive long-term catalyst. Nevertheless, we maintain our MARKET PERFORM call for now.

Risks to our call include higher-than-expected raw material cost, lower-than-expected order-book replenishment, and weaker-than- expected plantation, JVs and associates contributions.

Source: Kenanga Research - 31 May 2017