Foreign Funds Are Back? It is Only A Matter of Time They Rush Back to Their Old Time Favorite -CBIP

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CB Industrial Product is the world's one and only turnkey contractor for 'continuous sterilization palm oil mills'. Its mills extract palm oil by using a continuous conveyor chamber for sterilization, an improvement over the conventional method of batch processing.
Company photo

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CBIP's share price has risen steadily by more than 60% from RM2.77 on 1 October 2013 to reach an all-time high of RM4.61 on 25 March 2014. Bloomberg data

THE STEADY upward climb of CB Industrial Product's (CBIP) share price reminds me of legendary investor Jim Rogers' long-term bullish view on the agricultural sector.

Other funds appear to hold similar views: In the past six months, funds that loaded up on the stock included high-profile foreign institutional investors such as Dimensional Fund Advisors and Schroder Investment Management, as well as Malaysian fund managers.

Lim_Zee_Yang_14.3 'CBIP's share price has outperformed the Bursa Plantation Index in the past 4 years,' said Mr Lim Zee Yang, who is in charge of the company's investor relations and corporate affairs. Photo by Tok Chong YapExposure to preferred asset in right sector

Why is the sector such a hotspot for investors?

Farmland has a low or negative correlation with the performance of traditional assets such as equities, and is an effective inflation hedge.

It is also a capital preservation and portfolio diversification tool.

Secondly, even though demand for food grows with the world population, the world's availability of arable land is declining.

Arable land per person is expected to decline to 0.6 acres per person by the year 2021, down from 0.81 acres in 2011, according to estimates by DGC Asset Management.

Demand for agricultural assets has been driven by consumption growth in emerging markets such as China and India, where average consumption of vegetable oils remains well below that of the West.

In particular, crude palm oil is favored as it is a primary ingredient in a myriad of convenience foods: Chocolate bars, ice cream, pizza, lipstick, detergent even soap has palm oil in it.

Not only are oil palms the highest oil bearing crop in the world, the oil is also industrially usable.

Other than edible vegetable oil demand, demand is also driven by new biodiesel markets.

In the last 30 years, palm oil production has grown ninefold, and now represents almost one third of the vegetable oil market.

CBIP addresses problem of declining arable land

CBIP_factory_rear_14.3 CBIP has built 78 Modipalm Continuous Sterilization (MPCS) mills to-date. Company photo

As the world's largest palm oil mill construction company, CBIP is poised to capture the strong demand for palm oil mills in 2014, according to Kenaga Research.

And it is also the one and only publicly listed palm oil mill construction company.

"Every plantation needs an oil extraction mill next to its estate when the oil palm shoots mature into fruit-producing trees 4 to 5 years after planting," said Mr Lim Zee Yang, who oversees investors relations and corporate affairs at CBIP.

It provides turnkey contractor services including for the design, manufacture, procurement, supply construction and final commissioning of the mills to prominent palm oil players such as Astra, Wilmar, Felda, TH Plantations, Tradewinds and Sime Darby.

The increasing scarcity of arable land has made farm yields of prime importance.

This is where CBIP, as the joint patent holder of the Modipalm Continuous Sterilization (MPCS)milling system (with the Malaysian Palm Oil Board), becomes important to the plantation owners.

Its MPCS milling system has a higher palm oil extraction rate, reduces both operational and maintenance costs, and is also a safer alternative to conventional systems.

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Maintenance cost of CBIP's automated Modipalm Continuous Sterilization mills is estimated to be at half that of conventional mills. Yet, it is relatively safer as sterilization is non-pressurized, there is no oil spillage and does away with manual tasks. Company photo

The stock price of the Bursa Malaysia listed company went from less than RM3 half a year ago to shoot past RM4.50 this month.

The latest run-up came when its stock price surged from RM3.70 and broke its RM4 trading resistance after Financial PR arranged for the company to have a roadshow in Singapore.

The broking house has an 'Outperform' call on the stock with target price at RM4.42 as at 18 March.

Last year, CBIP generated Group revenue of RM580 million, of which 55% came from its palm oil engineering segment.

Indonesia and Malaysia, which together accounted for 86% of world production in 2013, contributed 85% to segment revenue.

Segment profit before tax grew 6% to reach RM82 million while segment profit before tax margin grew from 22.7% to 25.7%.

Segment order book was RM440 million as at the end of December 2013.

Other than that, it also owns oil palm plantations - an effective interest in 7,031 planted hectares through joint ventures in Sarawak plus a wholly-owned greenfield landbank of about 65,041 hectares in Indonesia.

"Our oil palm cultivation is expected to turn profitable in 2016," said Mr Lim.

About 3,400 hectares have been planted as at 31 December.

The company intends to acquire another 19,000 hectares of greenfield landbank in Indonesia and plant about 6,000 hectares a year.

Retrofitting of special vehicles boosts earnings

fire_engine_fleet_14.3 ambulance_fleet_14.3 CBIP provides design, fabrication, manufacturing, retrofitting and maintenance works on special purpose vehicles, notably fire fighting and rescue vehicles. Company photos

CBIP is also in the business of retrofitting special purpose vehicles such as ambulances and fire engines.

This segment contributed 45% to Group revenue last year while segment profit before tax was up 160% at RM41 million due to project implementation and completion in FY2013.

Segment profit before tax margin grew from 8.8% to 15.7%.

Last year, the Group secured a RM136.8 million contract from the Malaysia government to supply 100 fire engines.

Its special purpose vehicles order book was RM216 million as at 31 December.

Calvin comments:

Calvin likes All Oil Palm Stocks. But Calvin likes CBIP the most for its Outstanding Past Perfromance.

As It Was So Shall It Be!

SEE More Past News:

Saturday, 25 April 2015

CBIP shows why it is a leader in extracting oil from the palm fruit

BY IZWAN IDRIS

Lim: ‘We are building on average one mill per month at our plant here.’

THE plantation industry is all about economies of scale and in the palm oil milling process, every drop of oil to be squeezed from the palm fruit counts.

A key measure of palm oil milling efficiency is how much oil it can extract from a fruit bunch. The higher the extraction rate, the more money the mill can make, assuming that it can keep production cost down.

To improve their milling process, big plantation companies like Sime Darby Bhd, United Plantations Bhd and PT Astra Agro Lestari have turned to specialist CB Industrial Product Holdings Bhd (CBIP), for the company’s Modipalm mill.

“We are building on average one mill per month at our plant here,’’ CBIP managing director Lim Chai Beng tells StarBizWeek.

“All the prefabrication work for the Modipalm mill, the parts needed for the mill, are all done here. The mill can be shipped and assembled anywhere in the world,’’ he says.

Last week, CBIP secured its 100th Modipalm mill order from a client in Indonesia. Lim says the company has a healthy pipeline of new orders coming in from local planters and Indonesian clients.

The recent RM25.5mil mill contract lifted the group’s order book for the year to RM106.6mil. Analysts expects the group to secure around RM300mil worth of new orders this year.

“The latest job listed CBIP’s total outstanding order book to above RM500mil, which means earnings visibility until the fourth quarter of 2015 for its palm oil mill equipment division,’’ Kenanga Research says.

The palm oil engineering business generated about RM400mil in sales last year and commands a healthy margin of 22%, according to Kenanga.

But the expiry of the pioneer tax status for its Modipalm continuous sterilisation process this year would dent net profit contribution from the division, analysts say.

To boost sales and profits, Lim says the company is focusing on new milling technology, particularly on waste and effluent management for its Modipalm mill.

“Over the past decade or so, we have made a lot of refinement and enhancement to the Modipalm continuous sterilisation system, resulting in cleaner, more reliable and efficient mill,” Lim says.

CBIP had been selling Modipalm mills since 2003.

To overcome an initial issues of chain breakages at its continuous steriliser mechanism, the company has come up with double deck system and strengthened the links from 20 tonnes to 50 tonnes.

This increases the service factor by 150%, Lim said, while chain durability is now expected to last five years.

Even the layout of the Modipalm mill was changed to comply with the new safety and environmental regulations.

“Our new mills are designed and built to same standard in the food processing industry,’’ Lim says.

And key players in the industry are taking note of the progress.

Earlier this month, the company secured a RM49.8mil contract from United Plantations Bhd to design and build a mill with a processing capacity of 60 tonnes of fresh fruit bunches an hour.

Apart from building new mills, Lim says the company is seeing rising demand from plantation owners to convert and upgrade their older mills.

He cites key advantages of the Modipalm mill system over conventional mills; higher oil extraction yield, lower operating and maintenace cost, and higher safety standards.

Lim claims that Modiplam mill owners could save as much as RM1mil a year compared with a similar sized conventional mill from lower labour cost and maintenance alone.

Over the past ten years, Modipalm mills have gained international recognition and are currently operating in countries around the region, to as far as Central America, Africa and Papua New Guinea.

There are more than 40 Modipalm mills in Malaysia, which is about 15% of the total number of palm oil processing mills in the country.

CBIP made a net profit of RM92.7mil on revenue of RM565.4mil for the financial year ended Dec 31, 2014.

The company, however, is facing a tougher year ahead due to the weak CPO selling prices and a higher effective tax rate following the expiry of its pioneer status.

Kenanga Research estimates that earnings in financial year 2015 to contract to RM84mil (15.9 sen a share), before recovering to RM105mil (19.9 sen a share) in financial year 2016.

Shares in CBIP was last traded at RM2.07 yesterday.

The stock was able to command a higher valuation compared with peers because of its orderbook-based earnings, Kenanga says. The downside risk, however, is the unpredictable nature of the group’s retrofitting and maintenance of special vehicles division.

Revenue

CBIP, through a subsidary, supplies ambulances and fire fighting vehicle to the Government. Last year, the division generated some RM150mil in revenue, down from about RM250mil in financial year 2013.

The unit, AVP Engineering (M) Sdn Bhd, supplies about 200 units of vehicles to the Health Ministry a year.

CBIP also has its own palm oil plantation business.

In Indonesia, the group has 70,000 ha of greenfield project in Kalimantan Tengah. So far, more than 6,000 ha had been planted, but the plantation has yet to make significant contribution to the group.

“We continue to plant aggressively in Kalimantan Tengah and expect contribution to commence in 2016,” Lim 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.

Lim says the company is considering exiting from the joint venture to focus on its own greenfield project in Indonesia.

Indonesia, the world’s biggest crude palm oil (CPO) producer, reported an output of 33.5 million tonnes in 2014. The figure is projected to increase to 40 million tonnes in 2020.

Malaysia produces 19.7 million tonnes of CPO last year.

Analysts said rising CPO production worldwide is putting the lid of prices despite growing global demand for edible oil.

CPO futures contract prices on Bursa Derivatives, the global benchmark for the product, had fallen 18% over the past one year to settle at RM2,170 a tonne yesterday.

Like its plantation peers, shares in CBIP had been hit by the falling prices of CPO.

Lim, however, is optimistic that demand for the Modipalm mills will anchor the group’s performance in the coming years.

“We are targeting to increase our local market share from 15% to 25% in the near term,’’ he says.

Growth, he says, would come from commissioning of new plants as well as conversion jobs at older mills.

Indonesia will be another key market as expanding plantation land fuels demand for new mills.

Warren Buffet invests in GILLETE SHAVING BLADE.

His reason for buying Gillete was this

There are 7 billion people on planet earth. Assuming about half the world's population is male - while he slept Warren thought of 3.5 billion men whose beards are growing while they slept!

So the thought of 3.5 billion using his Gillete Shaving Next Morning made him slept very soundly.

Why Calvin likes Palm Oil?

For the same reason like Warren.

There are 7 billion people on planet earth. Next morning all 7 billion men & women also will be using tooth paste to brush their teeth. And do YOU KNOW that your tooth paste is made from Palm Oil?

That's the reason Calvin can sleep so soundly

Good night everybody

ZZZZzzzz,,,,........