KLCI : 1,778.36
Price Target : 12-Month RM 3.10 (Prev RM 3.20)
Impressive core engineering profits
2Q13 net profit of RM18.9m below expectations
Strong engineering contributions partly offset by losses in plantation
To capitalize on demand for Modipalm mills with capacity expansion
Maintain Buy with RM3.10 TP
Below expectations. CBIP’s 2Q13 net profit fell 20% y-o-y to RM18.9m as revenue softened by 4% to RM145.4m. This brings 1H13 net profit to RM37.5m, which is below expectations. 2Q13 earnings were mainly dragged by lower contributions from the special purpose vehicle segment and losses from its palm oil operations (resulting from lower CPO). Positively, the Group registered impressive profits from its core engineering and contracting (E&C) segment. E&C pretax profit is highest since 2006. Net cash grew 60% q-o-q to RM0.40/share.
Capacity expansion. The Group is expanding 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.
Maintain Buy. 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 7x forward earnings attractive. Maintain BUY with RM3.10 TP based on 8x FY14F EPS.
Publish date: 21/08/13