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Tuesday, August 20, 2013

CB Industrial Product Holding - Earnings To Accelerate In 2HFY13


CBIP’s 1HFY13 net profit was in line with our FY13 estimates, but below consensus. 1H is typically the weaker of the two halves, as project billings are generally back-loaded in 2H. Maintain BUY on CBIP, with a higher FV of MYR3.64 (after updating its latest net cash) from MYR3.50. We continue to see CBIP as an inexpensive proxy to the plantation sector, which is shielded from crude palm oil (CPO) price volatilities.

- In line. We consider CB Industrial Product (CBIP)’s 1HFY13 core net profit to be in line with our FY13 estimates but below consensus, coming in at 44% of our FY13 forecast and 39% of consensus forecasts. We consider the results to be in line since 1H is historically the weaker half for CBIP, given the timing of its progress billing to customers.

- Core net profit down 22.6% y-o-y. This was despite revenue rising 3.3% y-o-y in 1HFY13. The topline increase was attributed mainly to a 20.3% climb in the vehicle retrofitting division due to project implementation and completion during the period, and a 4.5% uptick in the oil mill engineering division. However, this was offset by the absence of revenue from the plantation division, which it disposed of in May 2012. The decline correspondingly affected its core net profit, although this effect was mitigated by the slightly higher margins of 24.5% (vs 24.4% in 1HFY12) posted by the oil mill engineering and 6.5% (vs 6.4% in 1HFY12) at the vehicle retrofitting division.

- No change to forecasts. We maintain our forecasts. Based on historical trends, we expect earnings to accelerate in the upcoming quarters, as project billings are generally back-loaded to the last two quarters.

- Maintain BUY. Our FV moves up to MYR3.64 from MYR3.50 previously after we incorporate CBIP’s latest net cash balance. Maintain BUY on this inexpensive proxy to the plantation sector, which is shielded from CPO price volatilities. We believe CBIP’s new zero discharge mill – and the recent proposed acquisition of Vickers Hoskins’ boiler factory – will extend its market reach and bolster medium-term growth. Meanwhile, its plantation operations in Indonesia – which will start contributing more significantly from FY16/17 – should provide long-term growth.

Source: RHB

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