• Maintain NEUTRAL, with new TP of MYR1.45 from MYR1.40, 3% downside. CB Industrial Product’s 1Q22 results beat expectations. Going forward, we expect the plantations division to drive growth, while the engineering profits will be relatively stable. Valuation is fair at current levels, trading at 7.4x 2023F P/E, in line with its peers of 6-10x.

• 1Q22 core profit came in slightly above our and consensus estimates, at 31% of the full-year projection on the back of higher-than-expected margins for its manufacturing and refinery divisions. We believe margin for its manufacturing division may moderate in the coming quarters, on the back of higher material costs.

• Core net profit fell 21% QoQ, but rose 70% YoY in 1Q22, on the back of higher contributions from all divisions. Included in the refinery segment’s LBT was a MYR13m derivative loss, which, if stripped out, would result in a positive PBT of MYR4.1m.

• Outstanding orderbook for CBIP’s engineering division (as at 1Q22) stood at MYR345m (end-4Q21: MYR341m). Revenue from this unit fell 15% YoY, while PBT increased by 24% YoY in 1Q22, due to higher recognition of contracts post-MCO. CBIP managed to secure MYR35m worth of new contracts in 1Q22, relating to a refurbishment contract in Indonesia. For FY22F-24F, we target new contracts of about MYR220-240m per year (including repair and maintenance works).

• The retrofitting division’s orderbook stands at MYR116m (vs MYR125m in 4Q21). This division recorded an improvement in PBT in 1Q22 of MYR0.8m (vs a loss of MYR0.2m in 1Q21), as progress billings improved. We expect progress billings to improve further in the coming quarters.

• As for downstream operations, CBIP’s Tanjung Langsat plant recorded a core profit of MYR4.1m in 1Q22 (up from -MYR0.5m in 1Q21 and -MYR0.3m in 4Q21). This was achieved despite lower utilisation of 40% in 1Q22, vs 60% in 4Q21, as CBIP reduced trading activities in 1Q22, focusing more on pure refining activities. Going forward, while utilisation should remain relatively stable, refinery margin is likely to improve further.

• Core PBT for the plantation division increased to MYR7m in 1Q22 (vs MYR1.8m in 1Q21 and MYR1.7m in 4Q21), on higher CPO prices. We expect this division’s profitability to drive growth for the group in FY22F.

• We adjust FY22F-24F earnings by -5% to +9%, after raising our CPO price assumptions to MYR5,300/tonne (from MYR4,300) for FY22 and to MYR4,300 (from MYR3,600) for FY23. FY24 CPO price assumption remains at MYR3,500/tonne.

• Maintain NEUTRAL. Post-earnings revision, our TP rises to 1.45 from MYR1.40, based on a rolled-forward 9x FY23F P/E. Our TP has already taken into account an ESG discount of 20%, given RHB’s ESG score of 2.0.

Source: RHB Research - 31 May 2022