Stock Name: CBIP
Company Name: CB INDUSTRIAL PRODUCT HOLDING
Research House: MAYBANK
CB Industrial Product Holdings Bhd (CBIP) (June 10, RM2.50)
Downgrade to hold at RM2.50, target price reduced to RM2.70 (from RM4.40 previously): In our view, earnings at CBIP's manufacturing division are stagnating and the plantation division is now the main driver to earnings variability.
We increasingly see CBIP as an upstream CPO (crude palm oil) play, albeit a less leveraged one as about half of its earnings are still manufacturing-based. We believe CBIP is attractively valued, but a rerating could be long-drawn due to a lack of catalysts.
CBIP's mills engineering has good visibility but limited upside potential. CBIP's outstanding order book stood at RM269 million, having secured RM33 million worth of new awards in 1Q10. We believe CBIP is on course to at least match 2009 billings of RM165 million.
The management is still confident of securing RM160 million-RM200 million worth of new contracts in 2010. Post-completion of its own mills, we estimate that the division could deliver about RM200 million of recurring revenue annually.
We see limited scope for significant top line growth as the utilisation rate is already high and there are no near-term plans to increase manufacturing capacity.
Milling and Indonesian planting commence in its plantations. CBIP's first mill (30 tonnes/hr) started operations this year and its second mill (45 tonnes/hr) is on course to begin operations in 2H10.
With the two mills on stream, CBIP will have sufficient capacity to process its entire FFB (fresh fruit bunches) crop. Its Malaysian estates are already mature, thus future production growth in Malaysia will be limited to gains from yield improvements.
CBIP is cultivating over 6,000ha of land (about 80% of total current planted area) in Kalimantan from 2010 to 2012. We expect earnings contribution to begin in 2013, when the first phase of plantings matures.
We bring down 2010-2011 EPS (earnings per share) by 19% and 20% respectively as we lower our manufacturing order flow and billing assumptions. Our target price is lowered to RM2.70 based on 6.4 timess forward PER (price-earnings ratio) which is 1 standard below the two-year mean.
Though we see deep value, a potentially lower CPO price and risk aversion towards small-cap stocks could hamper the realisation of CBIP's intrinsic value in the near term. ' Maybank IB Research, June 10
This article appeared in The Edge Financial Daily, June 11, 2010.
Company Name: CB INDUSTRIAL PRODUCT HOLDING
Research House: MAYBANK
CB Industrial Product Holdings Bhd (CBIP) (June 10, RM2.50)
Downgrade to hold at RM2.50, target price reduced to RM2.70 (from RM4.40 previously): In our view, earnings at CBIP's manufacturing division are stagnating and the plantation division is now the main driver to earnings variability.
We increasingly see CBIP as an upstream CPO (crude palm oil) play, albeit a less leveraged one as about half of its earnings are still manufacturing-based. We believe CBIP is attractively valued, but a rerating could be long-drawn due to a lack of catalysts.
CBIP's mills engineering has good visibility but limited upside potential. CBIP's outstanding order book stood at RM269 million, having secured RM33 million worth of new awards in 1Q10. We believe CBIP is on course to at least match 2009 billings of RM165 million.
The management is still confident of securing RM160 million-RM200 million worth of new contracts in 2010. Post-completion of its own mills, we estimate that the division could deliver about RM200 million of recurring revenue annually.
We see limited scope for significant top line growth as the utilisation rate is already high and there are no near-term plans to increase manufacturing capacity.
Milling and Indonesian planting commence in its plantations. CBIP's first mill (30 tonnes/hr) started operations this year and its second mill (45 tonnes/hr) is on course to begin operations in 2H10.
With the two mills on stream, CBIP will have sufficient capacity to process its entire FFB (fresh fruit bunches) crop. Its Malaysian estates are already mature, thus future production growth in Malaysia will be limited to gains from yield improvements.
CBIP is cultivating over 6,000ha of land (about 80% of total current planted area) in Kalimantan from 2010 to 2012. We expect earnings contribution to begin in 2013, when the first phase of plantings matures.
We bring down 2010-2011 EPS (earnings per share) by 19% and 20% respectively as we lower our manufacturing order flow and billing assumptions. Our target price is lowered to RM2.70 based on 6.4 timess forward PER (price-earnings ratio) which is 1 standard below the two-year mean.
Though we see deep value, a potentially lower CPO price and risk aversion towards small-cap stocks could hamper the realisation of CBIP's intrinsic value in the near term. ' Maybank IB Research, June 10
This article appeared in The Edge Financial Daily, June 11, 2010.
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