Analysts trim CBIP’s FY18, FY19 CNP estimates as challenges mount
KUCHING: CB Industrial Product Holding Bhd’s ( CBIP) financial year 2018 and 2019 estimate (FY18 and FY19E) core net profit has been trimmed by nine and 18 per cent as deteriorating earnings have been projected for the next one to two years.
The research arm of Kenanga Investment Bank Bhd ( Kenanga Research) trimmed FY18 and FY19E core net profit (CNP) by nine to 18 per cent to RM80.9 million RM78.3 million as “signs are pointing toward deteriorating earnings in the next one to two years, given that planters are scaling down capital expenditure (capex) and special purpose vehicle ( SPV) order- book is almost exhausted without major replenishment on the cards.
“Hence, we have lowered our SPV billings assumption by 35 per cent to RM109 million,” Kenanga Research said.
The research arm made no changes to the palm oil milling equipment ( POME) contribution and crude palm oil (CPO) price assumption of RM2,400 per metric tonne ( MT).
According to Kenanga Research, CBIP’s first half of 2017 (1H18) CNP came below expectations at RM39.7 million, although it made up 51 per cent of consensus’ RM77.1 million estimate and 45 per cent of the research arm’s RM88.5 million forecast.
This is because the research arm expected a softer 2H due to the exhausted SPV order-book.
“The disappointment stemmed largely from unexpected losses at the group’s plantation associate and joint venture (JV) companies.
“Note that we have stripped out a foreign exchange loss of RM4.4 million in our CNP calculation.”
Kenanga Research noted that the SPV segment’s orderbook has been on a declining streak, shrinking from RM448 million in 4Q16 to RM15 million in 2Q18.
It further noted that there has not been any major replenishment thus far.
“While we do not see any major catalyst in the near term, the division is not expected to sink into losses as it would continue to provide maintenance, repair and overhaul ( MRO) services, which command decent margins, circa 30 per cent earnings before interest and tax ( EBIT).
“In the POME segment, outstanding order- book stood at RM343 million in 2Q18 versus RM444 million in 1Q18.”
Kenanga Research also highlighted that by end-FY18, the group aims to secure jobs for four to five mills to be constructed over several years in Indonesia, which would translate into RM200 million to RM250 million order-book replenishment.
“If this materialises, the contribution would only kick in from FY19 onwards,” it said.
“This aside, the group’s ability to secure RM50 million to RM80 million upgrading works annually is a positive factor.
“Plantation division’s outlook is neutral as rising production could be offset by a weak crude palm oil ( CPO) price environment.”