CB Industrial Product (CBIP) has secured a contract from PT Nabire Baru to set up a 45MT/hour continuous sterilisation palm oil mill with a combined value of RM48.6m, bringing YTD POME order-book replenishment to RM301.4m, making up 79% of our FY19E replenishment assumption of RM380m. No changes to FY19-20E earnings as replenishments are within expectation. Maintain OUTPERFORM with an unchanged TP of RM1.25 based on Fwd. PER of 11.3x.

Bagged contract for continuous sterilisation palm oil mill. CBIP announced that its wholly-owned PalmitEco Engineering and its 95%- owned PT CB Polaindo had secured a contract from PT Nabire Baru on 24 April 2019. The contract entailed setting up a 45MT/hour continuous sterilisation palm oil mill with a combined value of RM48.6m and is expected to be completed by 30 April 2020 (12 months).

POME order-book replenishments within expectations. The contract resulted in an aggregate YTD order-book replenishment value of RM301.4m which is on-track with our expectation, making up 79% of our full-year assumption of RM380m for FY19. The new contract win should lift CBIP’s outstanding order-book for palm oil milling equipment (POME) segment to c.RM504.4m (from RM455.8m). Assuming PBT margin of 15%, this translates into a PBT of RM7.3m.

Outlook. Post contracts, we continue to expect CBIP to clinch 1-2 more contracts by year-end, compensating for its exhausted SPV order-book and subdued plantation business.

No changes to FY19-20E CNP of RM57.3-63.7m as order-book replenishments are within our expectation.

Maintain OUTPERFORM with an unchanged Target Price of RM1.25 based on unchanged Fwd. PER of 11.3x applied to FY19E EPS of 11.0 sen. Our Fwd. PER reflects -0.5SD vs. average of -1.0SD (range: -2.0SD to +0.5SD) for other planters under our coverage, warranted by CBIP’s torrent of contract flows lately.

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

Source: Kenanga Research - 30 Apr 2019