- Maintain HOLD on CB Industrial Product Holding Bhd (CBIP),
with a higher fair value of RM2.85/share, which is based on an unchanged PE of
15x on FY13F EPS.
- We have tweaked CBIP’s FY13F EPS upwards by 2.6% to account
for slightly higher revenue recognition from the mill construction division of
RM300mil versus RM280mil previously.
- Due to the loss of plantation earnings, we forecast CBIP’s
net profit to fall 24% in FY12F. Also, CBIP’s PE would rise from 10x in FY12F
to 14x in FY13F.
- We have assumed that the RM268mil disposal of the plantation
assets would be completed by mid-FY12F. We have not included the one-off gain
on disposal of RM141mil in our FY12F earnings forecast as it is not part of
CBIP’s core operations.
- CBIP’s construction order book is expected to grow in the coming
years, with new customers coming from Central America and Indonesia. In
Malaysia, CBIP’s main customers continue to be government-linked companies like
FELDA and private plantation owners.
- CBIP has the capacity to build about 20 mills in a year versus 12-15 mills in the past. The
group has increased its labour force so that it would be able to handle a
higher number of contracts.
- Although a large proportion of CBIP’s workforce is foreign,
CBIP has not faced problems of labour shortage so far. This is because it does
not take long to train workers as the processes are compartmentalised. Most of
CBIP’s foreign workers are from Indonesia, Nepal and Bangladesh.
- Our current gross DPS forecast of 6 sen for CBIP in FY12F does
not include potentially higher dividends coming from the disposal proceeds of
the plantation assets. If 50% of the proceeds are returned to shareholders,
then the incremental dividends would come up to 49 sen/share.
- We believe that the bulk of the disposal proceeds would go
towards CBIP’s plantation development expenditure in Indonesia. We estimate the
group’s planting cost at RM85mil-RM90mil annually based on new plantings of 5,000ha
and cost of RM17,000/ha to RM18,000/ha.
Source: AmeSecurities
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