CBIP’s 1H15 results were in line. Upgrade to BUY, with a lower SOPbased MYR2.10 TP (from MYR2.20, 21% upside). While we do not see significant earnings growth for CBIP, the recent share price retreat of close to 15% has brought valuations down to a more attractive level of <10x 2016 P/E. We await the patent approval of its zero-discharge mill which will be the next major catalyst for the stock.

In line. CB Industrial Product’s (CBIP) 1H15 core net profit was in line with our and consensus estimates, at 47-50% of FY15 forecasts.

1H15 core net profit fell 10.4% YoY, while revenue fell by a smaller 5% YoY. The larger decline in net profit was due to the expiration of its pioneer tax status in March, resulting in it recording an effective tax rate of 29% for 2Q15 (from 5.4% in 2Q14). EBIT improved by 9.6% YoY from a higher margin of 25.7% (vs 25.2% in 1H14) at its oil mill engineering division and lower losses at the plantation unit of MYR3.8m (1H14: MYR4.2m losses). This was offset by lower margin at the vehicle retrofitting division of 5.2% (vs 6.6% in 1H14)

Tweaking forecasts. We tweaked our earnings forecasts by -1.4% for FY15 and +2.3-3.9% for FY16-17, after lowering our CPO price assumptions for 2015 to MYR2,150/tonne (from MYR2.350) and after adjusting for our latest in-house MYR/USD exchange rate assumptions. We highlight that every 1% weakening of the MYR/USD would benefit CBIP by 0.4%, as c.40% of its oil mill engineering contracts are priced in USD. We have also lowered our target 2016 P/Es for the plantation division and the oil mill engineering division to 7x and 12x respectively (from 9x and 13x), as we take into account the weak market sentiment and outflow of foreign funds. Risks include: i) slowdown of contract wins, ii) change of direction of the USD/MYR rate and iii) lower CPO prices.

Upgrade to BUY. While we do not see significant earnings growth for the stock, the recent share price retreat of close to 15% has brought the share price down to a more attractive level of 10.5x 2016 P/E. Thus, we upgrade the stock to BUY (from Neutral). We understand that the process to obtain the patent approval for its zero-discharge mill has been approved by the Malaysian Investment Development Authority, and it is now in the process of getting the green light from the Ministry of International Trade and Industry and Selangor State Investment Centre.These approvals will result in CBIP regaining its pioneer tax status for another 5-10 years.