CBIP - Cheap valuations BUY

- Maintain BUY on CBIP (CB Industrial Product Holding) with an unchanged fair value of RM3.00/share. 

- Our fair value is based on an FY13F PE of 9x. We have raised CBIP’s FY13F EPS forecast by 11% to account for a higher EBIT margin. 

- CBIP’s valuations are cheap. The group is currently trading at an FY13F PE of 7.9x and FY14F PE of 7.6x. 

- In the past seven years, CBIP’s PE band ranged from a low of 3x to a high of 20x. Average PE was 10x. 

- CBIP’s profitability in FY13F is expected to be underpinned by a growing construction order book and low steel costs.

- EBIT margin is envisaged to be sustained by mechanical and electrical contracts, which are more profitable than turnkey contracts. 

- We have assumed that CBIP would secure RM250mil contracts in FY13F versus an estimated RM230mil in FY12F. New contracts are expected to come from existing customers in Malaysia and Indonesia. 

- Unbilled construction order book stood at RM329mil as at end-September 2012. This is about 1.0x of CBIP’s FY12F contracting/manufacturing revenue. 

- Steel costs are expected to remain low. According to Bloomberg, cold-rolled coil steel prices averaged US$676/short tonne in 4QFY12, 11% lower than the average of US$760/short tonne in 4QFY11. 

- Plantation division is anticipated to start contributing from FY15F/FY16F onwards. New plantings are estimated at 5,000ha in FY13F. Planting cost is forecast at US$6,000/ha. 

- Currently, CBIP has plantation landbank amounting to about 37,273ha in Central Kalimantan. Plantable landbank is estimated at 33,000ha or 89% of total landbank.  

- CBIP’s balance sheet is clean. As at end-Sept 2012, the group was in a net cash of RM167.4mil. 

- In spite of the healthy cash, we believe that CBIP would be conserving cash for its expansion in plantation. Hence, we have forecast a lower gross DPS of 12 sen for FY13F (FY12F: 15 sen), which implies a yield of 4.6%. 

Source: AmeSecurities