CBIP has proposed to dispose a piece of freehold land in Klang to IQSB (a subsidiary of KOSSAN) for RM40.0m. We are neutral on the disposal. Valuation at EV/ha of RM9.9m (c.40% premium to a similar transaction by MMAG in Nov-2019) is fair, justified by the factories and other buildings erected on it (vs. MMAG’s vacant land transaction). Expected gain in disposal (RM6.94m) is excluded from our CNP. Maintain UNDERPERFORM with an unchanged TP of RM0.780 based on FY21E PER of 9.9x (-2.0SD).

Disposes land in Klang. CBIP announced that it has entered into a share sale and purchase agreement to dispose a piece of freehold land in Kapar, Klang to Ideal Quality Sdn. Bhd. (IQSB; a wholly-owned subsidiary of KOSSAN) for a total cash consideration of RM40.0m. Erected on the 4.0494ha land are: (i) 2 single-storey detached factories, (ii) a three-storey office building, (iii) a single-storey canteen building, and (iv) a guard house as well as a surau building. The transaction is expected to be completed by 4QFY20.

Neutral on the disposal. The total consideration translates into EV/ha of c.RM9.9m. We believe this is fair, benchmarking against MMAG’s recent land transaction (also in Kapar, Klang) on 4th November 2019 with EV/ha of c.RM7.1m. This transaction price represents a premium of c.40% against MMAG’s vacant land transaction, which is justified by the factories and other buildings erected on it. The disposal is expected to generate a gain of c.RM6.94m which we have excluded from our Core Net Profit (CNP) forecast due to the one-off nature of the transaction.

2QFY20 sequential earnings decline expected. Given that the group has yet to secure any POME replenishment contracts for FY20 and alongside the MCO impact, its POME segment is likely to remain subdued in 2QFY20. Meanwhile, lower CPO prices (QTD2QFY20: -15% QoQ) lead us to believe that its plantation segment could fall into the red again in 2QFY20.

No changes to our CNP estimates but adjust FY20E net profit to account for the gain in disposal.

Maintain UNDERPERFORM with an unchanged TP of RM0.780 based on FY21E PER of 9.9x, representing -2.0SD valuation justified by: (i) expected sequential losses from its plantation division due to lower CPO price and extremely young tree age profile, (ii) subdued POME segment which has yet to clinch any order-book replenishment for FY20, and (iii) the qualified audit opinion for FY19 accounts that may cast a negative perception.

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

Source: Kenanga Research - 7 Jul 2020