August 3, 2011

CBIP wins new RM171m government contract

Stock Name: CBIP
Company Name: CB INDUSTRIAL PRODUCT HOLDING
Research House: MAYBANKPrice Call: BUYTarget Price: 4.75



CB Industrial Product Holding
(Aug 3, RM4.12)
Maintain buy at RM4.16 with target price of RM4.75: CBIP unit AVP Engineering (M) Sdn Bhd, has clinched a RM171 million government contract to supply and instal 100 fire and rescue transport vehicles to the Fire and Rescue Department. We estimate the contract will lift our 2011 to 2013 net profit forecasts by 3% to 8%, with a potential 14 sen upside (+3%) to our target price. Our earnings forecasts are maintained for now pending further updates on CBIP's recent proposals to dispose of estates. Maintain 'buy' with an unchanged target price of RM4.75 (seven times 2011 price-earnings ratio [PER]).

Assuming a typical 10% net margin based on its previous retrofitting jobs, we estimate the contract will provide a net profit enhancement of 3% in 2011 and 8% in 2012/13, given that billings will be recognised progressively over the next 30 months.

AVP Engineering has been involved in retrofitting ambulances and fire engines for the past five years. Its strong track record has equipped it to clinch bigger contracts, as seen by the recent announcements of significant contracts. In April, AVP won a RM38 million contract to supply ambulances.

We expect CBIP to secure more Modipalm orders in 2H11. CBIP has secured RM79 million year-to-date and is on track to meet our full-year wins of RM180 million.

We see a re-rating catalyst from its recent landbank unlocking exercise. Recall that in June CBIP proposed to dispose of its below-average yielding plantations, raising RM1.95 per share (RM268 million) in cash and making RM1.02 per share (RM141 million) in disposal gains. Post-disposal, CBIP is looking for expansion opportunities, failing which it may return part of its cash as special dividends to shareholders. We maintain our earnings forecasts and target price of RM4.75 based on seven times 2011 PER for now. ' Maybank IB Research, Aug 3


This article appeared in The Edge Financial Daily, August 4, 2011.

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