AMRESEARCH has maintained a buy on CB Industrial Product Holding Bhd (CBIP) but revised upwards its fair value on the company to RM4.15.

“We like CBIP for its proven track record in the palm oil mill construction industry and patented Modipalm mill. We are forecasting a net profit growth of 9% for FY2009 underpinned by RM200 million in contracts and an Ebitda margin assumption of 17%,” it said in a report yesterday.

AmResearch is expecting CBIP’s net profit for FY2009 and FY2010 to come in at RM66.3 million and RM71.2 million respectively.

The research house pointed out that while CBIP’s Modipalm mill, which uses horizontal continuous sterilisation method, had been facing competition from the vertical sterilisation mills, the latter was not as effective.

“Hence, there has been growing interest towards switching to the Modipalm mill,” noted AmResearch.

According to AmResearch, CBIP is looking to secure some RM300 million to RM400 million worth of contracts this year. Unbilled construction sales stood at RM287 million as at the end of March.

“Although contract flows were slow in the first half of FY2009, we understand that this is due to a few reasons. First, during the financial crisis some plantation companies were reluctant to invest in new mills.

“Second, CBIP was operating at full capacity and hence, there was limited space for more contracts. However, we understand that the momentum of contract flow would pick up in the second half of FY2009,” said AmResearch.

Another factor in CBIP’s favour is the company’s steel inventory. “Steel prices are creeping up. We understand, however, that CBIP has bought forward some steel inventory. The group currently holds between three and six months of steel inventory,” said AmResearch.

The research house also noted that the new feature on CBIP’s Modipalm mill called Modipalm Zero Waste Discharge System would help the mill to comply with the RSPO (Roundtable for Sustainable Palm Oil) guidelines.

“Going forward we believe this environmental-friendly feature would drive demand for Modipalm mills. In fact, it could help palm oil mills achieve the minimum greenhouse gas savings of 35% as stipulated by the European Union guidelines for sustainable palm oil,” said AmResearch.

Also, while its plantation arm made losses, CBIP said that it would not be selling its plantation landbank. Currently CBIP owns 9,656 hectares of oil palm estates.

“As CPO prices have improved, plantation associates could be breaking even in the coming few financial quarters,” said AmResearch.

This article appeared in The Edge Financial Daily, June 10, 2009.