CBIP orders at all-time high

In demand: Lim showing off his company’s products. CBIP specialises in the engineering side of the palm oil sector, constructing palm oil mills under its patented Modipalm palm oil milling system, which commands about 20% to 25% of the Malaysian market.

Rising CPO price boosts demand for its palm oil mills

THE recent uptrend in crude palm oil (CPO) price is spurring new investments by plantation companies looking to boost palm oil production. One company that benefits from this higher investment spending is CB Industrial Product Holding Bhd (CBIP), a maker of palm oil mills.

CBIP is witnessing an improvement in orders for its palm oil mills, stemming in part from a revival in previously deferred projects by plantation and mill owners.

While the recent uptrend in crude palm oil (CPO) prices has put big plantation companies in the spotlight, companies that are associated with the palm oil business would also fare well.

The company’s major shareholder and managing director Lim Chai Beng tells StarBizWeek that this has nudged its order book to an “all time high.”

“Thanks to the recent rally in the price of CPO, our order book is now at all time high.

“We are seeing more projects that were previously deferred, coming back to life,” he says.

CBIP specialises in the engineering side of the palm oil sector, constructing palm oil mills under its patented Modipalm palm oil milling system, which commands about 20% to 25% of the Malaysian market.

While CBIP has been building palm oil mills for the large plantation players in Malaysia and Indonesia for a while now, Lim says the next growth area for the company is demand from small and medium-sized oil palm players.

“Just because we are a public listed company, many perceived that our products are expensive, but they are actually priced competitively,” he says.

He adds that there is also demand from independent palm oil millers, who in turn provide milling facilities to plantation smallholders.

Kenanga Research in a Feb 25 report, pointed out that CBIP’s palm oil mill equipment segment has “a robust order book”, with earnings that are less volatile compared to the plantation sector.

“We are optimistic on the palm oil mill equipment segment as rising CPO prices should improve orders,” it said in that report adding that CBIP is benefits from the strong US dollar as 40% of the company’s order book is denominated in US dollars.

AllianceDBS points out that CBIP’s palm oil engineering division has an order book of some RM500mil, “which is expected to keep the group busy even if they are not able to secure sizeable contracts in 2016”.

CBIP’s palm oil engineering segment makes about 75% of its total sales and about 23% from special purpose vehicles segment such fire fighting and rescue vehicles and ambulances, which the company owns 51% of the operation.

According to AllianceDBS, palm oil engineering business reaps about 23% operating margins.

It adds that CBIP’s ability to replenish its orderbook will remain the key share price driver.

CBIP’s share price has climbed by more than 10% year to date.

However, it trades at an earnings multiple of 12 times 2016 earnings, lower than the plantation industry’s multiple of of 23 times 2016 earnings.

CBIP, which has been active in oil palm cultivation in Indonesia since 2010, after disposing its oil palm plantation estates in Malaysia for more than RM200mil.

In a follow-up to that, CBIP went on an acquisition spree of land in Kalimantan Tengah, Indonesia. The company’s oil palm landbank in Indonesia totalled 70,000ha presently.

Lim says that the disposal of its oil palm plantation estates in Malaysia was because he felt that “there is no more room for expansion”.

He says that although the company’s oil palm plantation business is still loss-making, he is targeting the sector to be profitable in 2017.

“The tree age profile is young and we are still developing the land. We are targeting the first mill to be completed in the first half of 2017, that is when we will see revenue to start kicking in,” he says.

However, Lim points out that only 40,000 ha from the 70,000 ha of its landbank in Indonesia is suitable for planting.

“We are currently at the midst of selling the other 30,000 ha land,” he says.

Lim says that almost 10,000 ha of the land has already been planted, and that CBIP is aiming 6,000 ha to be planted annually.

“We are targeting to complete the development (of planting up) of the 40,000 ha of land by 2020,” he says.

Notably, CBIP is sitting on a net cash position of about RM177mil or 33.7 sen a share.

“Oil palm cultivation is part of CBIP’s diversification plan to generate recurring income aside from our mills maintenance segment,” he adds.

Lim currently is the single largest shareholder of CIBP with 32.88% stake.

There are also several institutional funds present in its shareholders list including AIA Bhd and Retirement Fund Inc (KWAP) with 4.6% and 2% stake respectively.

CBIP is also in the midst of developing its zero-discharge technology palm oil mill.

AllianceDBS said that there is a potential for CBIP to commercialise its new plantation waste management system with zero discharge by late 2016.

“We understand that the zero-discharge system might qualify for pioneer status, which would help reduce the group’s effective tax rate,” it says.

Apart from its Indonesian venture, CBIP is also in a joint venture with Tradewind Plantations with a total planted area of 20,000 ha in Sarawak. Another public listed company that is also involved in palm oil mill machineries is Dolphin International Bhd, which was listed on the main board of Bursa Malaysia in June 2015.

It has been reported that Dolphin’s market share in the palm oil milling machinery sector is 3.2% in Malaysia and 0.5% in Indonesia.

Source : The Star

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