CB Industrial - Manufacturing division still holding up well HOLD

- We maintain a HOLD on CBIP with an unchanged fair value of RM2.85/share, which is based on FY13F PE of 13.5x. We have raised the group’s FY13F EPS by 10.5% to account for a stronger construction order book. 

- CB Industrial Product Holding Bhd’s (CBIP) FY11 results were within consensus estimates and our expectations. 

- CBIP’s PE band ranged from a low of 4x to a high of 21x in the past seven years. The group’s average PE was 10x. 

- CBIP classified its plantation earnings as profits from discontinued operations in 1QFY12. We reckon that the disposal of the plantation subsidiaries would be completed by 2HFY12. The plantation division recorded a net profit of RM6mil in 1QFY12. 

- CBIP’s turnover (excluding plantation) expanded 82.4% YoY to RM113.3mil in 1QFY12, driven by an increase in the mill construction order book and higher contribution from the retro-fitting vehicles division.  

- Mill construction turnover expanded 36% from RM57.1mil in FY11 to RM77.7mil in FY12. As at end-FY11, the value of CBIP’s projects in-hand (including boilers) amounted to RM932.1mil. 

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

- Pre-tax profit of the mill construction division also improved, by 133% YoY to RM17.7mil in 1QFY12, underpinned by enhancements in margins. We believe that CBIP benefited from higher-margin contracts and the fall in steel prices.

- Pre-tax profit margin of the mill construction division inched up from 13% in 1QFY11 to 23% in 1QFY12. 

- Turnover of the retro-fitting vehicles division surged from RM5mil in 1QFY11 to RM35.7mil in 1QFY12, aided by an increase in the number of contracts. 

- The division had won contracts valued at RM171mil and RM38mil, respectively, from the Fire and Rescue Department of Malaysia and Ministry of Health to deliver and commission fire transport vehicles and ambulances last year.

- As a result, the retro-fitting vehicles division swung from a loss of RM0.1mil in 1QFY11 to a small pre-tax profit of RM2.7mil in 1QFY12.

Source: AmeSecurities