CB Industrial Product Berhad: Look To Better FY10 - 01/03/2010

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PP 7767/09/2010(025354)

Malaysia Corporate Highlights


RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e 1 March 2010
MARKET DATELINE

Share Price : RM2.70


CB Industrial Product Fair Value
Recom
:
:
RM3.30
Outperform
Look To Better FY10 (Maintained)

Table 1 : Investment Statistics (CBIP; Code: 7176) Bloomberg: CBP MK


Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 334.4 41.3 30.6 (30.4) 8.8 - 7.2 1.5 16.5 48.1 3.7
2010f 473.5 61.3 41.2 48.2 6.5 48.0 5.3 1.4 22.1 28.0 6.3
2011f 534.5 74.0 49.7 20.6 5.4 51.0 4.6 1.2 22.6 18.6 7.4
2012f 564.6 77.6 52.1 4.9 5.2 4.3 1.0 20.4 9.7 7.8
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ In line with ours, below consensus. CBIP’s FY09 net profit was in line
with our estimates but below consensus forecasts, coming in at 103.7% RHBRI Vs. Consensus
Above
of our and 86.5% of consensus FY09 forecasts, respectively.
In Line
♦ Net profit fell 31% yoy, on the back of revenue decline of 18.2% yoy Below

in FY09. The decline in revenue came from oil mill engineering and Issued Capital (m shares) – 148.7
equipment division (-15.4% yoy) and the others division (comprising its fd for share placement
firefighting equipment sales, -57.7% yoy). However, this was offset Market Cap(RMm) 401.6
slightly by the 28.5% yoy rise in revenue recorded in its plantation Daily Trading Vol (m shs) 0.3
division. Operating profits fell by a relatively lower 8% yoy, due to higher 52wk Price Range (RM) 1.77-3.50

EBIT margins recorded in the engineering division of 15.4% (from 12.3% Major Shareholders: (%)
Lim Chai Beng & family 28.5
in FY08) due to lower steel costs and the strengthening of the US$, as
Govt of Singapore Invtmt
well as margin improvement in the others division to 13.2% (from 7.2% Corp
2.1
in FY08). This was offset slightly by lower margins recorded in the
plantations division (excluding the losses from associates) of 21% (from
38.8% in FY08) caused by the lower CPO price achieved. FYE Dec FY10 FY11 FY12
EPS chg (%)
♦ Risks. Main risks include: (1) a significant decline in oil mill engineering Var to Cons (%) (14.1) (2.5) -
contracts due to slower-than-expected economic recovery and plantation
investment in Indonesia as well as Malaysia; (2) a stronger-than- PE Band Chart
expected rise in steel prices and weakening of the US$, resulting in
weaker-than-expected margins for the oil mill engineering division; (3) a PER = 16x
PER = 12x
fall in CPO and other global vegetable oil prices caused by weather PER = 8x
PER = 4x
abnormalities; and (4) a reversal in crude oil prices and thus CPO prices.

♦ Forecasts. No change to our forecasts. CBIP has an unbilled orderbook


of approximately RM300-350m currently and is bidding for another
RM200m worth of contracts, which should last it for the next 18 months.

♦ Investment case. Our SOP-based target price is unchanged at RM3.30 Relative Performance To FBM KLCI

(see Table 2) and we maintain our Outperform recommendation on CBIP.


We believe progress billings would start to pick up from FY10 onwards, as
CB Industrial
CBIP’s progress billing for the oil mill engineering division is no longer
held back by the building of its own CPO mill as it was in FY09. Note our
fair value reflects the dilution from the 10% proposed private placement.
FBM KLCI

Hoe Lee Leng


Please read important disclosures at the end of this report.
(603) 92802184
hoe.lee.leng@rhb.com.my

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Table 2 : Earnings Review

FYE Dec (RMm) 4Q08 3Q09 4Q09 % qoq % yoy FY08 FY09 % yoy Comment

Turnover 135.7 88.1 76.0 (13.7) (44.0) 409.3 334.8 (18.2) Reduction in revenue coming mainly from oil mill
engineering and equipment division (-15.4% yoy)
and the others division (comprising its firefighting
equipment sales, -57.7% yoy). However, this was
offset slightly by the 28.5% yoy rise in revenue
recorded in its plantation division
Profit from 19.2 13.6 17.2 26.6 (10.3) 66.8 60.5 (9.3)
operations
EBIT 18.2 12.9 17.4 34.5 (4.3) 63.9 58.8 (8.0) Higher margins recorded in the engineering
division of 15.4% (from 12.3% in FY08) and the
others division of 13.2% (from 7.2% in FY08),
offset slightly by lower margins recorded in the
plantations division of 21% (from 38.8% in FY08)
caused by the lower CPO price achieved
Other op income 1.1 0.7 (0.1) (120.5) (113.4) 2.8 1.8 (38.0)
Interest expense (2.4) (1.4) (1.4) - (43.5) (6.4) (5.9) (8.0) In line with decrease in net gearing to 48.1% in
4Q09 (versus 67.1% in 4Q08)
Associates (2.6) 0.7 3.1 313.3 (219.2) 8.5 (5.5) 100.0 New acquisitions (Bahtera Bahagia, Kumpulan Kris
Jati and Solar Green) showed improvements on
qoq basis, although FY09 still in the red
Exceptional items - - - - -
- -
Pretax Profit 14.2 13.0 18.9 45.8 33.3 68.8 49.2 (28.6) Flow through from EBIT, lower operating income
and loss in associates and JV contribution
Taxation 0.6 (2.7) (4.1) 55.6 (797.5) (6.0) (5.9) (1.0)
Minorities (1.0) (0.2) (0.8) 236.6 (17.4) (2.2) (2.0) (9.8)
Pre-acq profit - - - - -
Net Profit 13.8 10.1 14.0 38.6 1.3 60.7 41.3 (32.0) Flow through from PBT, higher effective tax rate
and minorities

EPS (sen) 10.2 7.5 10.4 38.8 2.1 44.2 30.5 (31.0)
Gross DPS (sen) 10.0 - - 15.0 10.0
NTA/Share (RM) 1.64 1.75 1.85 1.64 1.85

Operating profit 14.2 15.5 22.7 16.3 18.1


margin (%)
EBIT margin (%) 13.4 14.7 22.9 15.6 17.6
PBT margin (%) 10.5 14.8 24.9 16.8 14.7
Effective tax (%) (4.2) 20.4 21.8 8.7 12.1

Table 3. Fair Value Calculation


Target PER (x) RMm
Plantations 12 277.2
Oil mill engineering & construction 8 360.0
Net Debt @ end-3QFY09 (145.3)
TOTAL 580.1
Issued shares (‘m) 148.7
RM/share 3.31

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Table 4. Earnings Forecasts Table 5. Forecast Assumptions
FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10f FY11F FY12F

Turnover 334.8 473.5 534.5 564.6 Oil mill division revenue 21 17 9


growth (%)
Turnover growth (%) (18.2) 41.4 12.9 5.6 CPO Selling Price (RM/t) 2,500 2,700 2,500
FFB Selling Price (RM/t) 570 600 550
Operating Profit 60.5 73.2 80.6 86.8
Op Profit Margin (%) 18.1 14.8 14.5 14.8

EBITDA 71.1 82.4 91.6 99.5


EBITDA margin (%) 21.2 17.4 17.1 17.6

Depreciation (10.6) (12.2) (14.0) (15.8)


Associates (5.5) 5.3 12.7 10.1
Net interest costs (5.9) (5.9) (4.4) (3.2)
Exceptional items - - - -

Pretax Profit 49.2 72.6 88.8 93.6


Tax (5.9) (8.8) (12.4) (13.6)
PAT 43.2 63.8 76.5 80.1
Minorities (2.0) (2.5) (2.5) (2.5)
Net Profit 41.3 61.3 74.0 77.6
Net Profit (ex-EI) 41.3 61.3 74.0 77.6
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

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of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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