With its growing oil mill engineering orderbook, potential new contracts to be awarded to the retrofitting division, as well as the earnings boost from its pioneer status granted under its zero-discharge mill patent, we think that CBIP’s earnings growth prospects are intact. Maintain BUY, with a higher SOP-based TP of MYR2.55 (from MYR2.40, 18% upside).

Stable earnings growth. Despite its strong finish to FY15, CB Industrial Product (CBIP) expects earnings to continue on its growth trajectory going into FY16, due to increased contracts at the oil mill engineering division as well as new contracts expected to be awarded to the retrofitting division. We also expect the palm oil division to recover faster, given the rising CPO price environment. We expect longer-term earnings to be further improved on the back of the pioneer tax-free status which CBIP has received on the back of the patent approval for its zero-discharge mill. We have not factored this into our forecasts yet.

Growing orderbook. We understand that its orderbook as at end-December was MYR517m for the oil mill engineering unit (vs MYR478m at end-September) and MYR35m for the retrofitting division (vs MYR90m at end-September). Orders for the oil mill engineering unit continues to come through and management targets new orders of MYR400-500m this year. We think its current orderbook should be able to be sustained for the next year and a half. Risks include: i) continued slowdown of contract wins, ii) changes in the direction of the USD/MYR rate, and iii) lower CPO prices.

Financial Exhibits

SWOT Analysis

Source: RHB Research - 25 Feb 2016