By A. Stephanie
Kenanga Research today upgraded CB Industrial Product Holding Bhd (CBIP) to “outperform” from “market perform” previously, following the palm oil mill manufacturer being awarded a US$20.9 million (RM74.9 million) contract by PT Sinar Mas Group.
In its filing with Bursa Malaysia yesterday, CBIP announced that its wholly-owned subsidiary Modipalm Engineering Sdn Bhd has been contracted by Sinar Mas to build a 40/80 metric tonne per hour palm oil mill and bulking station in Liberia.
Believing CBIP to hold better upside prospects and lower volatility than many plantation companies due to its order book-based earnings, Kenanga Research also increased its target price for the counter to RM2.46 in line with its upgraded call.
Kenanga commented, “We are positive on the faster-than-expected contract flow as this is CBIP’s third contract announcement within a space of two months. The contract makes up 23% of our FY15 expected order book replenishment assumption.”
The upgrade comes barely a month after the research house pushed CBIP from “underperform” to “market perform” on April 9 after the palm oil mill manufacturer landed a similar RM50 million contract with plantation blue chip United Plantations.
A week later on April 16, CBIP secured a further two contracts valued at RM25.5 million for its modipalm continuous sterilisation milling system from Indonesia’s PT Niagamas Gemilang.
Noting that the company’s year to date contract flow at RM181.5 million makes up 56% of Kenanga’s order book replenishment assumption, its analyst said this puts CBIP ahead of schedule in terms of replenishment, with only five months of the year accounted for.
“Assuming earnings before interest and tax (Ebit) margin of 22% for this RM74.9 million project, it should translate into RM16.5 million to its bottom line – is in line with its palm oil mill equipment (POME) segment’s 22% margin last year,” the research house remarked.
As this latest contract boosts CBIP’s total outstanding order book to above RM500 million, this would mean earnings visibility until 4Q15 for its POME division, its analyst added.
Kenanga also expects CBIP to announce more contracts to mitigate effects of its pioneer status ending mid-2015. The research house has thus increased assumptions for 2015 and 2016 to RM450 million – RM500 million.
“However, we understand that much of the FY15 expected replenishment is targeted to begin recognition at end-2015 and in 2016. Hence we expect much stronger earnings growth next year. We maintain our 2015 earnings forecast at RM84 million but upgrade 2016 earnings to RM117 million,” its analyst said.
As at noon today, CBIP was trading on Bursa Malaysia at RM2.04, unchanged.
You must be logged in to post a comment.