CB Industrial Product (CBIP) announced that it has entered into a contract to build a 60/80 TPH palm oil mill in Sumatera Selatan, Indonesia valued at RM61.4m. We are positive on the announcement which brings its Palm Oil Milling Equipment (POME) order-book to c.RM480.0m. No change to our FY17-18E CNP. Maintain OUTPERFORM with unchanged TP of RM2.10 based on Fwd. PER of 10.9x.

Contract for mill in Sumatera. CBIP announced that it has entered into a contract with PT Pratama Palm Abadi, a subsidiary of Oriental Holdings Berhad to build a 60/80 TPH palm oil mill in Sumatera Selatan, Indonesia. We gather that the value of the contract is divided into an imported portion at USD9.6m (RM39.5m) and a local portion at IDR73.7b (RM22.0m). The total value of the contract is RM61.4m.

Within replenishment expectations. We are positive on the announcement as the first major order-book win announced for the year. We expect this contract to bring CBIP?s outstanding Palm Oil Milling Equipment (POME) order-book to c.RM480.0m which provides earnings visibility over the next two years. The project value makes up c.10% of our FY18 order-book replenishment assumption of RM500m. Assuming an EBIT margin of 25% for this project, this translates to bottom-line contribution of RM15.4m. Our assumption is in line with 9M17 POME margin of 25%.

Steadily chugging along. We expect CBIP?s earnings to remain stable on the back of good earnings visibility up to 2019. We continue to look forward to new developments in the company?s business model, such as recurring income streams from a build-operate-transfer model for its POME segment and fresh maintenance contracts in the Retrofitting Special Purpose Vehicles (RSPV) segment. However, steel price volatility continues to pose short-term risk to margins.

Maintain FY17-18E CNP of RM95.3-102.1m as the award falls within our order-book replenishment assumptions.

Reiterate OUTPERFORM with unchanged TP of RM2.10 based on unchanged FY18E EPS of 19.5 sen on Fwd. PER of 10.9x with maintained valuation basis of +0.5SD. This reflects the company?s steady POME order-book position and strong balance sheet position, with net cash of RM82.8m (15.8 sen per share) and decent dividend yield of 4.0%.

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

Source: Kenanga Research - 05 Jan 2018