CB Industrial Product (CBIP) recorded 9M17 Core Net Profit (CNP*) of RM66.5m which came in within our forecast at 70% but missed consensus estimates at 66%. An interim dividend of 3.0 sen was announced, for year-to-date DPS of 6.0 sen, in line with our estimated 7.3 sen. No change to FY17-18E CNP of RM95.3-102.1m. Reiterate OUTPERFORM with updated TP of RM2.10 (from RM2.20).

9M17 meets our expectations. CBIP reported 9M17 CNP of RM66.5m, which is within our expectation at 70% of our RM95.3m forecast but missed consensus expectations at 66% of RM100.7m, likely owing to softer-than-expected billings. An interim dividend of 3.0 sen was announced, for year-to-date DPS of 6.0 sen, which we deem within our 7.3 sen forecast. Note that this matches 9M16 DPS of 6.0 sen as well.

Steady improvement. YoY, 9M17 CNP improved 19% mainly on better Retrofitting Special Purpose Vehicles (RSPV) segment PBT (+37%) due to higher completions for the quarter. Excluding forex losses, Palm Oil Mill Equipment (POME) core performance was flat (- 2%) on slower billings owing to the slower pace of order-book replenishment. Plantation contribution from associates and jointly controlled entities (JCE) also jumped 1.2x to RM14.4m thanks to better CPO prices and production. QoQ, 3Q17 CNP softened 34% on lower POME core PBT (-36%) and slower RSPV contribution (-46%) due to slower project billings. However, Plantation associates and JCE saw stronger PBT of 17%, thanks to higher production and stable CPO prices.

Healthy order-book. We expect earnings to remain stable towards year-end supported by a solid order-book balance of RM424m providing visibility over the coming year. Margins should see improvement as well as we observe that flat steel prices for 4Q17 quarter-to-date (QTD) have declined 4% to RM2,565/MT compared to 9M17 prices of RM2,702/MT. We expect RSPV contributions to remain steady thanks to on-going projects, while Plantation contribution should be higher against FY16 on better production and prices.

FY17-18E CNPs unchanged at RM95.3-102.1m as results came in line with our estimates.

Maintain OUTPERFORM with lower TP of RM2.10 (from RM2.20) based on unchanged FY18E EPS of 19.5 sen on updated Fwd. PER of 10.9x (from 11.3x) based on an unchanged valuation basis of +0.5SD. This reflects the stable POME order-book position with around two years of earnings visibility. With share prices at their lowest since Sep 2015, we believe that any news on additional income streams could be a positive catalyst. Meanwhile, we continue to like CBIP for its steady order-book-based earnings and strong balance sheet position with net cash of RM82.8m (15.8 sen per share) supporting a decent dividend yield of 4.0%, among the highest yields under our plantation coverage.

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

Source: Kenanga Research - 29 Nov 2017