22/10/2005 (The Star) - AmResearch Sdn Bhd has maintained a positiveoutlook on CB Industrial Product Holding Bhd (CBIP) due to its growthpotential over the next two years, firm standing in the palm oil millindustry and attractive valuation.

CBIP designs, builds and commissions modular palm oil mills calledModipalm, which have processing capacities ranging from five to 45 tonnesan hour.

According to AmResearch in its notes, the company's earnings are expectedto be driven by recognition from a higher number of contracts secured thisyear.

It noted that CBIP had secured RM80.8mil worth of contracts year-to-dateand its management was confident of clinching another RM146mil worth ofjobs in the remaining months of the year.

Coupled with existing contracts of RM221.3mil, the company is likely toachieve its targeted RM350mil to RM400mil worth of contracts.

"We believe these contracts would come from Indonesia and Malaysia andwould keep CBIP busy for the next two years. Each contract is expected torange between 12 and 15 months," AmResearch said.

The research house expects stronger performance in the second-half year asthe bulk of the unbilled sales of RM181.2mil, or 60% to 70%, will only berecognised in the final six months.

The major portion of the unbilled sales is likely to come from PT SawitAsahan Indah, PT Astra Lestari and Sarawak Oil Palms Bhd.

As for the conversion market, two or three contracts for Modipalm werepending approval from Felda and Tabung Haji boards, AmResearch said,adding that conversion fees were estimated at RM6mil per mill.

Furthermore, since the Modipalm technology is patented and the rights lastfor the next 15 years, there is little possibility of new entrants in thissegment.

Existing competitors, on the other hand, were small with capacity of up to20% to 30% of CBIP's size only, the brokerage said.

It added that the depreciating rupiah was not a major concern since theIndonesian contracts were in US dollar denomination.

The impact of the strengthening ringgit on the company's earnings was alsopartially mitigated by borrowings of US$10mil, which were used to partlyfinance the purchase of the Sachiew plantation in Sarawak.

The downward trend in steel prices would also bode well for CBIP as steelconsists of 30% of production cost, AmResearch said. Even if steel pricesincreased next year, this will be partly mitigated by the practice ofthree-month inventory.

In addition, the stock was trading at an attractive valuation of 8.8 timesbased on year to Dec 31, 2006 earnings, the brokerage said.

CBIP managing director Lim Chai Beng told StarBiz that demand for Modipalmwas expected to grow stronger over the next two years. "We have been inIndonesia for three years while we started in Malaysia only about half ayear ago," he said.