CB Industrial Product (CBIP) has bagged four contracts to set up a CPO mill, PK crushing and biogas plants. The contracts have an aggregate value of RM132m, bringing current POME order-book to an estimated RM378m. The replenishment value is within our expectation, accounting for 53% of our RM250m assumption for FY19. No changes in FY18-19E CNPs of RM67.4-67.7m. Maintain MARKET PERFORM with unchanged TP of RM1.10.

Bagged contracts to set up CPO, PK crushing and biogas plants. CBIP announced that its wholly-owned PalmitEco Engineering had received three letters of awards of contracts from PT Kodeco Agrojaya Mandiri on 13-20 November 2018. The contracts entailed setting up a 60MT/hour conventional palm oil mill, a 200MT/day kernel crushing plant and a 1,600kW biogas power generator plant over 16 months. The combined value of the contracts amounted to RM87m.

Double positives. At the same time, the group also announced that the same subsidiary had entered into a contract with PT Sanjung Makmur on 7 February 2019 to set up a 45MT/hour continuous sterilisation palm oil mill. The contract has a value of RM45m, and is to be constructed over 18 months.

POME order-book replenishments within expectations. The aggregate order-book replenishment value of RM132m is within our expectation, fulfilling 53% of our full-year assumption of RM250m for FY19. Outstanding order-book of the palm oil milling equipment (POME) segment stood at RM336m in 3Q18. Assuming c.RM90m of the order-book are recognised in 4Q18, the new contracts would bring the current order-book to RM378m.

No changes in FY18-19E CNP of RM67.4-67.7m as order-book replenishments are within our expectation.

Maintain MARKET PERFORM with an unchanged TP of RM1.10 based on unchanged Fwd. PER of 8.5x applied to FY19E EPS of 13.0 sen. Our Fwd. PER reflects -2.0SD valuation basis given CBIP’s diminishing POME order-book outlook and an exhausted SPV order- book. However, the expected dividend yield is decent at 3.8% compared with peers’ average of 2.2%. We may re-look our valuation basis when there are fresh catalysts such as larger-than-expected POME order-book replenishments, and further developments in its Plantation segment, which could provide long-term catalysts for revenue and earnings growth.

Risks to our call include sharp rises/falls in raw material cost, subdued/larger-than-expected order-book replenishment, and worse- than-expected plantation losses.

Source: Kenanga Research - 14 Feb 2019