CBIP to see a sequentially better quarter ahead

KUALA LUMPUR: CB Industrial Product Holding Bhd (CBIP) is expected to see a sequentially better quarter ahead, driven by higher billings and stronger margins, analysts observed.

Kenanga Investment Bank Bhd’s research arm (Kenanga Research) in a report, noted that CBIP’s first nine months of 2018 (9M18) core net profit (CNP) was at RM50.4 million.

Year-on-year (y-o-y), it said, CBIP’s 9M18 CNP declined 10 per cent mainly due to higher effective tax rate of 28 per cent (compared with 25 per cent in 9M17) on higher foreign taxes.

At the PBT level, it said, the group registered nine per cent growth on the back of a two-fold increase in its special purpose vehicle (SPV) profit before tax (PBT), despite its revenue dropping 39 per cent on lower billings.

“Due to declining order-book, the group has been actively rationalising the SPV segment’s overheads, resulting in the currently higher PBT margin of 37 per cent (compared with 11 per cent in 9M17).

“However, this was mitigated by poorer performance in the Plantation segment (including its plantation associate and joint venture companies), which registered an aggregate loss before tax (LBT) of RM4.3 million, compared with a PBT of RM11.9 million 9M17, mainly due to an 18 per cent drop in average CPO price to RM2,343 per MT in 9M18,” it explained.

On a quarter-on-quarter (q-o-q) basis, Kenanga Research said its 3Q18 CNP halved to RM10.7 million due to exhausted SPV order-book (RM2 million in 3Q18 compared with RM15 million in 2Q18) and lower billings in the palm oil mill equipment (POME) segment.

“While the SPV orderbook is exhausted, we do not see the division sinking into losses as it should continue to receive ad-hoc and maintenance jobs of RM1 million to RM2 million per quarter, also accounting that the segment’s fixed overheads amount to RM300,000 to 400,000 per quarter.

“For POME, we expect better performance in 4Q18 on higher billings sequentially and stronger margins, as costs in the segment are usually front-loaded,” it opined.

Kenanga Research also noted that CBIP’s outstanding orderbook of the segment stood at RM336 million in 3Q18, down slightly from RM343 million in 2Q18, but remains supportive of our POME revenue forecast of RM364 million.

“Overall, we expect 4Q18 to be a better quarter compared with 3Q18,” it added.

All in, the research team upgraded its call on the stock to ‘outperform’, from ‘market perform’.

“We may re-look at our valuation basis when there are fresh catalysts such as POME order-book replenishment that is likely to come about by 1Q19, and further developments in its Plantation segment, which could provide long-term catalysts for revenue and earnings growth,” it added.