Friday, 1 March 2013

CB Industrial - More contracts flowing in BUY

- Maintain a BUY on CB Industrial Product Holding Bhd (CBIP) with an unchanged fair value of RM3.00/share. Our fair value is based on an FY13F PE of 9x.

- CBIP’s FY12 core results were within consensus and our expectations.

- The group declared a final dividend of 5 sen/share late last year. This resulted in total gross dividends of 15 sen/share for FY12, which translates into an attractive yield of 5.9%.

- We have forecast a lower gross DPS of 12 sen for FY13F, to be conservative. This implies a dividend yield of 4.7% and a payout of 36.3%.

- CBIP’s turnover surged 61.3% YoY to RM520.4mil in FY12. The group benefited from a huge number of contracts secured in FY11. The mill construction division recorded a 61.5% expansion in pre-tax profit.

- CBIP is estimated to have received RM374mil worth of contracts in FY11 compared with RM226mil in FY10. Each contract lasts between 12 and 18 months.

- Pre-tax margin of the mill construction division improved from 17.8% in FY11 to 22.4% in FY12F on the back of higher valued-added contracts.

- Mechanical and engineering contracts command margins which are higher than turnkey contracts.

- CBIP also benefited from lower steel costs in FY12. According to Bloomberg, the price of cold-rolled coil declined 7.3% from an average of US$783.09/short tonne in FY11 to US$725.96/short tonne in FY12.

- As at end-September 2012, unbilled sales of CBIP’s mill construction division stood at RM329mil. This should sustain the group’s turnover for another year.

- CBIP would be planting on its landbank in Central Kalimantan this year.

- New plantings are estimated at 5,000ha for FY13F. Cost of new plantings are envisaged at US$6,000/ha or RM18,600/ha.

- Currently, CBIP has landbank amounting to 37,273ha. Out of these, about 33,000ha is plantable with oil palm trees.

Source: AmeSecurities

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