CBIP upgraded to ‘market perform’ on RM50 mil job

By A. Stephanie

Kenanga Research today upgraded CB Industrial Product Holding Bhd (CBIP) to “market perform” from “underperform” previously, following the palm oil mill manufacturer being awarded an RM49.8 million contract by United Plantations Bhd.

In its filing with Bursa Malaysia yesterday, CBIP announced that its wholly-owned subsidiary Modipalm Engineering Sdn Bhd has been awarded the contract to design and construct a 60-tonne/hour palm oil mill for the plantation blue chip in Ulu Bernam, Selangor.

Kenanga said the contract should further strengthen CBIP’s order book, as it pushed its total outstanding value beyond RM500 million.

It noted: “This contract makes up 16% of our FY15 (financial year 2015) order book replenishment estimates. Assuming Ebit (earnings before interest and tax) margin of 22% for this project, it should translate into RM10.8 million to CBIP’s bottom line.”

Maintaining the target price at RM2.05, Kenanga said the upgrade was made in light of emerging value after CBIP’s recent selldown.

“CBIP holds better upside prospects than many plantation companies due to its order book-based earnings. However, volatile earnings in the retrofitting special purpose vehicles segment could pose a risk to earnings growth,” its analyst remarked.

AllianceDBS Research, meanwhile, maintained its “hold” recommendation on the counter, with a target price of RM2.20.

The research house said the United Plantations contract came within its FY15 order book replenishment estimates, and thus left earnings estimates unchanged.

However, it added: “Although we continue to like the group’s long-term growth prospects, the near-term earnings outlook is unexciting, mainly dampened by the higher effective tax rate.”

CBIP equips global palm oil mills with processing equipment and replacement parts. As at the first half of 2013, the manufacturer has approximately 80 Modipalm patented continuous sterilisation palm oil mills around the world.

It also retrofits special purpose vehicles and other palm oil mill related businesses, such as steam energy boilers.

As at 11am today, CBIP’s share price was RM2.04, up 2% or 4 sen from its previous closing price of RM2.00.