EARNINGS DRIVER: Photo shows Jakluay Palm Oil Mill, one of CBIP’s completed projects in Kalimantan, via its engineering division Modipalm.The
group’s engineering division will drive earnings in the future via sales, maintenance and upgrade of palm oil mill equipment, according to OUBKH.

16/07/2012 (Borneo Post) - CB Industrial Products Holding Bhd (CBIP), a provider of palm oil processing equipment, is envisaged to see business growth via its engineering division (Modipalm Engineering Sdn Bhd), premised on the Modipalm mill which offers higher oil extraction rates (OERs).

UOB Kay Hian (Malaysia) Holdings Sdn Bhd (OUBKH) in a research report stated that a visit to a Modipalm mill, which used CBIP’s patented continuous sterilisation (CS) process, had demonstrated the advantages of Modipalm over conventional mills.

“According to the mill manager, the mill’s oil OER was about 23.34 per cent in 2011, the highest in Malaysia as compared with conventional mills that have an average OER of 21 per cent.

“CBIP’s Modipalm CS system offers better OER and lower oil losses from condensation as well as ‘unquantified’ oil loss (for example, oil and loose fruit spillage).

“As compared to conventional mills, CBIP management indicates that its CS system could increase OER by one to two points.

“Based on our estimates, a one point improvement in OER would lift net profit by five to 10 per cent, which is substantial enough for planters to consider implementing the system,” OUBKH said.

Based on the research house’s observation, Modipalm mill required less labour as compared to a conventional mill as most of the processes for CS system were automated.

CBIP indicated that that its Modipalm mill could save about RM3.75 per tonne of fresh fruit bunch (FFB) tonne on labour costs as less manpower was required. In addition, the mill could result in maintenance costs savings of RM2.17 per tonne of FFB.

“Further growing its orderbook by targeting to secure projects worth about RM500 million from plantation companies, CBIP is expected to ride on the expanding plantation sector in Indonesia and Africa.

“A mill is required for every 7,000 to 8,000 hectares (ha) of oil palm trees. Given the huge planting activities in recent years, demand for palm oil mills has also increased.”

Profit for 2012 would come from strong engineering orders but net profit would be lower than 2011 due to the absence of its plantation earnings which accounted for 39 per cent of profit before tax for 2011, the research house said.

Nevertheless, the company had guided that the mechanical and engineering division would continue to perform on the back of strong unbilled sales, focus of high-margin mechanical supply business and recurring income from machinery replacement and upgrading works.

Meanwhile, post-disposal of its Malaysia plantation assets, CBIP now has about 8,000ha of landbank in Kalimantan; the planted area is expected to start contributing in 2014.

It has also acquired about 29,273ha of plantation landbank in Kalimantan, which increases its total landbank there to 37,273ha. It expects to start planting on its newly acquired landbanks in 2013 and it targets to plant about 5,000ha to 8,000ha every year.

“CBIP has a dividend policy of paying out one-third of its net profit. However, in 2011, CBIP declared a tax-exempt dividend of 35 sen per share (about 90 per cent of payout ratio), well above its dividend policy, due to the high level of cash on hand (RM58.1 million or 21.1 sen per share in 2011).

“As CBIP’s cash position would remain high after the disposal of its plantation assets (net proceeds of RM268.1 million or 97 sen per share), there might be another year of payout that is greater than its policy dividend in 2012.

“Assuming a payout ratio of 90 per cent (similar to 2011’s) and consensus earnings per share of 31.3 sen, CBIP might pay out about 28.2 sen per share in 2012, representing a dividend yield of 10.5 per cent,” the research house opined.