CB Industrial Product - Receives RM40mil contract HOLD

- CB Industrial Product Holding Bhd (CBIP) announced that it has secured a RM40mil contract from Jaya Tiasa Holdings Bhd. 

- Under the contract, CBIP will supply and install part of the mechanical and engineering works of a 120 tonnes/hour palm oil mill.  

- This is the third announcement on an award of a contract that CBIP has made this year. 

- In March 2012, CBIP announced that it secured an RM44.7mil contract to design and build a 30 tonne/hour Modipalm mill in Kelantan. In June, CBIP said that it received US$5.1mil (RM16.1mil) contracts from Wilmar and Sime Darby.

- We view the award of the contract by Jaya Tiasa positively. 

- The contract would help increase CBIP’s mill construction order book and sustain profit growth.   

- CBIP’s unbilled sales stood at RM371.1mil as at end-FY11, which was 1.2x of FY11’s mill construction turnover. 

- As Jaya Tiasa’s plantation division is growing, we reckon that the contract would place CBIP in a good position to secure more mill construction contracts from Jaya Tiasa in the future.

- Going forward, CBIP’s net profit could fall due to the disposal of its plantation subsidiaries.

- We have assumed that the disposal of the plantation assets would be completed by midFY12F. In FY11, the plantation subsidiaries accounted for 39% of the group’s pre-tax profit.

- We maintain a HOLD on CBIP. PE valuations are expected to increase due to the fall in profitability resulting from the loss of plantation earnings.  

Source: AmeSecurities