CB INDUSTRIAL PRODUCT HOLDINGS BHD

CB INDUSTRIAL Product Holdings Bhd (CBIP) announced that it has entered into a contract with PT Pratama Palm Abadi, a subsidiary of Oriental Holdings Bhd to build a 60/80 TPH palm oil mill in Sumatera Selatan, Indonesia.

Kenanga Research estimates that the value of the contract is divided into an imported portion at US$9.6mil (RM39.5mil) and a local portion at 73.7 billion rupiah (RM22mil). The total value of the contract is RM61.4mil.

“We are positive on the announcement as the first major order-book win announced for the year. We expect this contract to bring CBIP’s outstanding palm oil milling equipment (POME) order-book to around RM480mil, which provides earnings visibility over the next two years.

“The project value makes up around 10% of our 2018 order-book replenishment assumption of RM500mil. Assuming an earnings before interest margin of 25% for this project, this translates to bottom-line contribution of RM15.4mil. Our assumption is in line with nine-months 2017 POME margin of 25%.”

Kenanga Research said it expects CBIP’s earnings to remain stable on the back of good earnings visibility up to 2019.

“We continue to look forward to new developments in the company’s business model, such as recurring income streams from a build-operate-transfer model for its POME segment and fresh maintenance contracts in the Retrofitting Special Purpose Vehicles segment. “However, steel price volatility continues to pose short-term risk to margins.”

Risks to Kenanga Research’s ‘outperform’ call include higher-than-expected raw material cost, lower-than-expected order-book replenishment and weaker-than-expected plantation contributions.