CB Industrial Product (CBIP) has secured contracts from Malaysia Airport Sdn. Bhd. for 17 units of Airport Fire Vehicles worth RM76.2m. Positively surprised as order-book for the SPV division was previously fully exhausted. Tweaked FY19-20E earnings higher by 1%/2% to account for new SPV wins. Upgrade to OP with an unchanged TP of RM1.10 after 18% share price retracement.

Secured contract for Special Purpose Vehicle (SPV) division. CBIP announced that its 49% owned subsidiary AVP Engineering has secured contracts from Malaysia Airport Sdn. Bhd. worth RM76.2m. The contracts entailed the (i) supply, delivery, testing and commissioning of 17 units of Airport Fire Vehicles (RM68.9m), which is expected to be completed by March 2023, as well as comprehensive maintenance of the 17 units of Airport Fire Vehicles (RM7.3m), which is targeted to be completed by March 2038.

SPV division revival. The contracts came as a positive surprise, as we did not factor in SPV contract replenishments for FY19-20E, given its exhausted order-book. Assuming a GP margin of 15%, we estimate the contracts to contribute FY19-20E PATAMI of RM0.4m-0.8m. As we understand, CBIP is still actively tendering for contracts for its SPV division, mainly from the Ministry of Housing and Local Government (KPKT). However, we believe that there is no hurry for KPKT to replace existing SPVs and thus, do not expect SPV contracts for the remaining FY19E.

Expecting 1-2 more POME contracts. YTD, POME’s order book replenishment stands at RM301.4m, accounting for 79% of our FY19E target of RM380m. Moving forward, we anticipate CBIP to clinch 1-2 more contracts by year-end, enabling it to meet our FY19E target. Meanwhile, we estimate CBIP’s current POME outstanding order-book to stand at c.RM504.4m, which should provide 1-1.5 years visibility.

Tweaked FY19-20E CNP higher by 1%/2% to account for new SPV contract wins and FY20E SPV replenishment of RM50m.

Upgrade to OUTPERFORM (from MARKET PERFORM) with an unchanged Target Price of RM1.10 based on an unchanged Fwd. PER of 9.2x applied to FY20E EPS of 12.2 sen. We believe our upgrade is fair given (i) more attractive valuation as it is currently trading at Fwd. PER of 8.1x, after share price retracement (-18%) since late Apr-19 (from a high of RM1.20), (ii) CBIP’s torrent of contract flows lately. Our Fwd. PER reflects -1.0SD vs. other planters’ range (-2.0SD to -1.0SD) under our coverage.

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 - 24 Jun 2019