CB Industrial Product (CBIP) announced getting a LOA to build a 40/80 MT/hour palm oil mill in Liberia with contract value of RM49.8m and expected completion by mid-2020. This win brings its Palm Oil Milling Equipment (POME) order-book to c.RM384.8m. No changes to our FY19-20E CNP of RM52.2-48.3m. Maintain UP with unchanged TP of RM0.850 based on unchanged Fwd. PER of 8.5x.

Received LOA for mill in Liberia. CBIP announced that its wholly- owned PalmitEco Engineering has received a Letter of Acceptance (LOA) from Golden Veroleum (Liberia) Inc to build a 40/80 MT/hour palm oil mill in Liberia. The value of the contract is USD12.1m or RM49.8m with expected completion by mid-2020.

We are positive on the continuous contract flows as this is CBIP’s second contract announcement within a space of one month. YTD contract sum of RM181.8m makes up 72.7% of our FY19E order-book replenishment assumption of RM250m, putting CBIP on schedule in terms of replenishment target.

POME’s outstanding order-book at c.RM384.8m. Outstanding order- book of the palm oil milling equipment (POME) segment stood at RM335.0m as at 4Q18. The new contract win of RM49.8m should further lift CBIP’s outstanding order-book to c.RM384.8m. Assuming EBIT margin of 15.0% for this RM49.8m project, it should translate into RM7.3m to its bottom-line. Our assumption is in line with its palm oil mill equipment (POME) external segment margin of 15.0% in FY18. This implies earnings’ visibility up to early 2020 for its POME division.

No changes in FY19-20E CNP of RM52.2-48.3m. We maintain FY19- 20 forecasts as the order-book replenishment is within our expectation.

Maintain UNDERPERFORM with unchanged Target Price of RM0.850 based on an unchanged Fwd. PER of 8.5x applied to FY19E EPS of 10.0 sen. Our Fwd. PER currently reflects -1.5SD valuation basis given CBIP’s exhausted SPV order-book. SPV order-book may remain volatile given the specialized nature of the contracts, but we understand from the company that it will be performing regular maintenance jobs for existing clients. Meanwhile, POME’s slower billings may adversely impact the group’s earnings going forward. We may relook at our valuation basis when there are fresh catalysts such as further developments in its plantation segment, which could provide long-term catalysts for revenue and earnings growth.

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

Source: Kenanga Research - 15 Apr 2019