CBIP’s boiler unit, Advance Boilers, entered into an agreement to acquire a 10 acre piece of land in Klang for RM35.975. This land used to belong to competitor Vickers Hoskins, and comes complete with two factories and an office building, amongst others. Land pricing is reasonable. We are positive on this acquisition as it would enable CBIP to expand its boiler business, leveraging on its growing modipalm mill business. We maintain our Buy recommendation with unchanged SOP-based fair value pf RM3.35.

Boiler manufacturing subsidiary acquires 10 acre land in Klang. CBIP’s subsidiary, Advance Boilers Sdn. Bhd. (ABSB) has entered into an S&P Agreement with Vickers Hoskins (M) Sdn. Bhd. (VHSB) to acquire a 4.094ha (10 acres) piece of land in Kapar, Klang, Negeri Selangor for RM35.975m. The land contains: i) two single storey detached factories; ii) a three storey office building; iii) a single storey canteen building; iv) a guard house and surau building; as well as (v) the plant, machinery, raw material, furniture, office and related equipments. ABSB is CBIP’s boiler manufacturing arm, while VHSB is a company which manufactures boilers, which has gone into receivership. CBIP will fund the acquisition with internally generated funds. The rationale for the acquisition is to enable CBIP to expand its boiler manufacturing business, which is an essential component of its modipalm mill. The acquisition is due to be completed by end 2Q2013.

Land price reasonable, positive on acquisition. There was no valuation done on the land. However, based on the land size of 10 acres, CBIP is paying RM3.6m per acre (or RM82.60 psf), which we believe is a reasonable price to pay, in line with average transaction values of land in the area (RM85-90 psf). CBIP has been talking about expanding its boiler capacity for a while now, given that its boiler plant has almost reached full capacity already. Taking over VHSB’s boiler plant, which is not too far from its own manufacturing plant in Klang would enable CBIP to leverage on its modipalm mill operations, by cross-selling its boiler product together with its modipalm mill. CBIP would not have any problem funding this acquisition, as it had net cash of RM173.5m at end-FY12.

Source: RHB