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Maintain SELL, with new MYR0.85 TP from MYR0.90, 18% downside. CB Industrial Product’s FY22 results were largely in line. Going into 2023, we expect improved profitability in the engineering and refinery divisions to be offset by the continued losses at the plantation subsidiaries. Valuation remains rich – 7.7x 2023F P/E – at the high end of its peer range of 5-8x.
FY22 core profit came in largely in line with our and consensus estimates, at 105-106% of FY22 projections. CBP declared a DPS of 2 sen in 4Q22 (FY21: 4 sen), implying 27% payout and 1.9% yield for FY22.
Outstanding orderbook for CBP’s engineering division (as at 4Q22) stood at MYR261m (end-1H22: MYR299m). FY22 revenue from this unit rose 10% YoY, while PBT was down 5.9%, due to lower margin of 20% (vs 24% in FY21). There were no major contract refurbishments in 4Q22, which translates to MYR55m worth of new contracts in FY22. Going forward, the company is targeting MYR100m in contract wins in FY23F, which is lower than our previous assumptions of MYR150-170m. We therefore adjust our assumptions accordingly.
The retrofitting division’s orderbook stands at MYR339m (vs MYR95m in 3Q22). This division recorded a 95% jump in core PBT of MYR5.2m in FY22 (vs MYR2.7m in FY21), as progress billings improved. This division won a MYR250m ambulance retrofitting contract in 4Q22, which will be spread out over the next 2-3 years. We expect progress billings to improve further in the coming quarters.
Big losses at downstream operations. CBP’s Tanjung Langsat plant recorded a loss of MYR43m in FY22, due largely to trading losses on positions taken on its PO feedstock caused by the fall in CPO prices. We understand the high-priced feedstock has largely been unwound in 3Q22. This division may still face lacklustre prospects in FY23F, as demand remains soft with more intense competition from Indonesia. The company’s utilisation rate remained at 50% in 4Q22. We impute a small recovery from FY23F.
Plantation division remained in the red, with a core pre-tax loss of MYR12.8m in FY22, on the continued impact of the tax policies in Indonesia as domestic CPO prices took some time to close the gap with international prices. Going forward, we now project losses to likely continue in FY23F at CBP’s subsidiary level given the reinstatement of tax levies in Indonesia. However, we expect its plantation associates to remain profitable.
We cut FY23F-24F by 9-13%, after imputing losses at the plantation division and smaller profits at the refinery and engineering division.
Maintain SELL with a lower TP of MYR0.85 (from MYR0.90) based on an unchanged 8x FY23F P/E. Our TP also takes into account an ESG discount of 20%, given its ESG score of 2.0. Current valuation of 7.7x 2023F P/E is rich, trading at the high-end of its peers’ 5-8x 2023F.
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