MARKET DEVELOPMENT
CB Industrial Product is a Buy, say HwangDBS and RHB Research
CB Industrial Product is a Buy, say HwangDBS and RHB Research
20/08/2013 (The Star) - Palm oil specialist CB Industrial Product Bhd’s second quarter net profit came in below expectations at RM18.9mil, 20% down year-on-year, but HwangDBS Vickers Research remains bullish on the stock, maintaining its Buy call with the target price revised downwards 10 sen to RM3.10 for the stock which closed at RM2.87 on Monday.
Earnings were mainly dragged by lower contributions from the special purpose vehicle segment and losses from its palm oil operations (due to lower CPO), with first half earnings at RM37.5mil (core net profit down y-o-y 22.6%).
“Positively, the group registered impressive profits from its core engineering and contracting (E&C) segment. E&C pre-tax profit is the highest since 2006. Net cash grew 60% q-o-q to RM0.40/share,” the research house says.
Meanwhile the group is expanding its manufacturing capacity to 20-24 mills by end-2013 (current capacity at 12-14 mills/year) via its factory in Klang.
“We believe there is upside to engineering margins resulting from increasing focus on mechanical projects that yield higher margins and outsourcing of lower margin civil works of the mill.
“Our FY13-15 earnings are cut 5-13%, following the 2Q13 earnings. Despite the weakness from the palm oil operations, we are encouraged by contributions from its core E&C division. On the back of its prospects for the E&C business, strong balance sheet, 20% net margin, we consider current valuations at 7 times forward earnings attractive.
RHB Research is also maintaining its Buy call on CBIP, with an even more upbeat fair valuation at RM3.64, up 14 sen from its last target price, after factoring in the net cash.
It says the soft first-half net profit was in line with its estimates, being typically the weaker of the two halves. It pointed out that core net profit was down 22.6% y-o-y despite revenue rising 3.3% y-o-y in 1HFY13.
“The topline increase was attributed mainly to a 20.3% climb in the vehicle retrofitting division due to project implementation and completion during the period, and a 4.5% uptick in the oil mill engineering division. However, this was offset by the absence of revenue from the plantation division, which it disposed of in May 2012.
“Maintain BUY on this inexpensive proxy to the plantation sector, which is shielded from CPO price volatilities. We believe CBIP’s new zero discharge mill – and the recent proposed acquisition of Vickers Hoskins’ boiler factory – will extend its market reach and bolster medium-term growth. Meanwhile, its plantation operations in Indonesia – which will start contributing more significantly from FY16/17 – should provide long-term growth,” says RHB Research.
Earnings were mainly dragged by lower contributions from the special purpose vehicle segment and losses from its palm oil operations (due to lower CPO), with first half earnings at RM37.5mil (core net profit down y-o-y 22.6%).
“Positively, the group registered impressive profits from its core engineering and contracting (E&C) segment. E&C pre-tax profit is the highest since 2006. Net cash grew 60% q-o-q to RM0.40/share,” the research house says.
Meanwhile the group is expanding its manufacturing capacity to 20-24 mills by end-2013 (current capacity at 12-14 mills/year) via its factory in Klang.
“We believe there is upside to engineering margins resulting from increasing focus on mechanical projects that yield higher margins and outsourcing of lower margin civil works of the mill.
“Our FY13-15 earnings are cut 5-13%, following the 2Q13 earnings. Despite the weakness from the palm oil operations, we are encouraged by contributions from its core E&C division. On the back of its prospects for the E&C business, strong balance sheet, 20% net margin, we consider current valuations at 7 times forward earnings attractive.
RHB Research is also maintaining its Buy call on CBIP, with an even more upbeat fair valuation at RM3.64, up 14 sen from its last target price, after factoring in the net cash.
It says the soft first-half net profit was in line with its estimates, being typically the weaker of the two halves. It pointed out that core net profit was down 22.6% y-o-y despite revenue rising 3.3% y-o-y in 1HFY13.
“The topline increase was attributed mainly to a 20.3% climb in the vehicle retrofitting division due to project implementation and completion during the period, and a 4.5% uptick in the oil mill engineering division. However, this was offset by the absence of revenue from the plantation division, which it disposed of in May 2012.
“Maintain BUY on this inexpensive proxy to the plantation sector, which is shielded from CPO price volatilities. We believe CBIP’s new zero discharge mill – and the recent proposed acquisition of Vickers Hoskins’ boiler factory – will extend its market reach and bolster medium-term growth. Meanwhile, its plantation operations in Indonesia – which will start contributing more significantly from FY16/17 – should provide long-term growth,” says RHB Research.