• Maintain NEUTRAL and TP of MYR1.30, 7% downside with c.4% FY22F yield. Although CB Industrial Product’s plantation segment was adversely impacted by the Indonesia export ban in 2Q, we believe this will reverse in the coming quarters, while engineering profits should be relatively stable. Its valuation is fair – at 7x 2023F P/E, in line with the peer range of 6-11x.

• 1H22 core profit are in line with our and consensus estimates, at 42- 43% of FY22 projections, as we expect 2H22 to record stronger profits. 1H22 earnings was dragged by a weaker performance in the plantation segment. This, in turn, was caused by the impact of the Indonesia export ban as well as the domestic market obligation policy implemented in 2Q, resulting in lower CPO ASPs realised. We expect this segment to improve in the coming quarters after the lifting of the ban.

• Outstanding orderbook for CBIP’s engineering division (as at 2Q22) stood at MYR308m (end-1Q22: MYR345m). 1H22 revenue from this unit rose 25% YoY, while PBT increased by 46% YoY, due to higher recognition of contracts post-MCO, as well as higher manufacturing margins ie 34% (vs 26% 1H21). We anticipate profits from this segment to be relatively stable, supported by MYR55m worth of new contracts in 1H22 relating to a refurbishment job in Indonesia. For FY22-24F, we maintain our new contract targets of about MYR220-240m per year (including repair and maintenance works).

• The retrofitting division’s orderbook stands at MYR103m (vs MYR116m in 1Q22). This division recorded a jump in PBT of MYR3.5m in 1H22 (vs MYR0.2m in 1H21), 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 marginal core profit of MYR0.1m in 2Q22 (down from MYR4.1m in 1Q22 and MYR3.8m in 2Q21). This was achieved despite the higher utilisation rate at its refinery, of 60% in 2Q22 (from 40% in 1Q22) – likely due to trading losses on the back of lower CPO prices in 2Q22. Going forward, we expect the marginal profits of this division to remain put.

• Plantation division fell into the red, with a core pre-tax loss of MYR3.5m in 2Q22 (2Q21: -MYR2m, 1Q22: MYR7m), on lower CPO prices in Indonesia due to the export ban. This division should chart stronger numbers in the quarters ahead post-lifting of the ban, as domestic ASP’s in Indonesia have risen.

• We make no changes to our earnings estimates as the impact of the export ban was short-lived, and we believe the plantation segment will pick up in 2H22 while the engineering unit should remain stable.

• Maintain NEUTRAL and a TP of MYR1.30, based on an unchanged 8x FY23F P/E. Our TP has already taken into account an ESG discount of 20%, given RHB’s ESG score of 2.0. CBIP’s current valuation is fair – at 7x 2023F P/E, in line with its peer range of 6-11x.

Source: RHB Research - 25 Aug 2022