CBIP’s core net profit was in line. We raise our TP to MYR2.40 (from MYR2.35), implying 25% upside. Although the slightly lower orderbook could indicate a slowing of new orders due to a deceleration of new planting in Indonesia, we believe this should change once CPO prices start to improve. In addition, CBIP’s current orderbook should be able to sustain it for the next 1.5 years, while the patent approval for its zero discharge mill could provide an earnings boost via a pioneer tax status.

In line. CB Industrial Product’s (CBIP) 9M15 core net profit was in line with our and consensus estimates, at 74-75% of FY15 forecasts.

9M15 core net profit fell 9.7% YoY, while revenue fell by a similar 9.5%YoY. The larger decline in net profit was due to the expiration of its pioneer tax status in March, resulting in an effective tax rate of 23.4% in 9M15 (from 7.5% in 9M14). EBIT improved by 11.7% YoY from higher margins of 23.7% (from 22.9% in 9M14) at the oil mill engineeringdivision and lower losses at the plantation division of MYR4.1m (from losses of MYR6.5m in 9M14). This was offset by lower margins at the vehicle retrofitting division of 8% (vs 10.2% in 9M14).

No change to our earnings forecasts. 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 understand that orderbook as at end-Sep was MYR478m for the oil mill engineering division (from MYR530m at end-June) and MYR90m for retrofitting division (from MYR118m at end-June). Although the reduced orderbook could indicate a slowing of new orders due to a deceleration of new planting in Indonesia on the back of a still low CPO price, we believe this should change once CPO prices start to improve. Nevertheless, CBIP’s current orderbook should be able to sustain it for the next 1.5 years. Risks include: i) continued slowdown of contract wins, ii) change of direction of the USD/MYR rate and iii) lower CPO prices.

Buy maintained. Our SOP-based TP is raised slightly to MYR2.40 (from MYR2.35), after imputing CBIP’s latest net cash. We maintain our Buy recommendation on the stock, as valuations remain inexpensive at current levels. We understand that all necessary approvals have been obtained for its zero-discharge mill patent and it is now waiting for the official certification. These approvals will result in CBIP regaining its pioneer tax status for another 5-10 years, which will provide a boost to earnings. We have not factored this into our forecasts yet.