The RM44 million to be raised from the private placement will be used to pare down its net gearing to 42% from 62% (RM140 million) and allow it to acquire new plantation land for future growth.

CBIP is proposing a private placement of new shares, representing up to 10% of its existing share base (excluding 2.3 million treasury shares). This implies 13.5 million new CBIP shares. The placement price will be at a maximum 10% discount to the weighted average market price for five market days prior to price-fixing date.

Maybank Investment Bank (Maybank IB) said at the current price of RM3.27, CBIP would be able to raise between RM39.8 million and RM44.2 million cash from this exercise.

“While the placement will have an immediate earnings per share (EPS) dilution of 6% per annum for 2010-2011, the emergence of strategic investors is long-term positive,” it said. CBIP has indicated that the proposed private placement is expected to be completed by 2Q10.

Maybank IB said CBIP had identified one or several strategic investors to take up these new shares and that these strategic investors were likely to be major plantation players. CBIP is looking to acquire tracts of plantation land in either Papua New Guinea or Kalimantan.

Meanwhile, AmResearch estimated a reduction of FY2010F EPS by about 7% to 44.5 sen, but pointed out that if CBIP acquired an earnings-accretive asset using the placement proceeds, then the dilutive effect on EPS from the private placement would be partly mitigated.

“Greenfield landbank (only with hak izin lokasi) in Kalimantan is estimated to cost between RM300 per ha and RM500 per ha while that in Papua New Guinea was estimated to cost between RM3,000 per ha to RM4,000 per ha.

“Assuming CBIP purchases 5,000ha of land in PNG, total cost of acquisition would be roughly RM20 million (based on RM4,000/ha),” AmResearch said.

Maybank IB Research said it liked CBIP for its valuation and it being a proxy to rising crude palm oil (CPO) price.

“The stock currently trades at 5.8 times 2010 PER with decent gross dividend yields of 5.7% for 2010. However, the earnings dilution from this placement may prompt a similar 6% downward revision to our target price of RM4.60 based on eight times mid-2011 PER,” Maybank IB said, in maintaining its buy call on CBIP.

AmResearch also maintained buy on CBIP with a fair value of RM3.85, for its undemanding valuation and proven track record in the mill construction industry in the Asian region.

Yesterday, CBIP closed at RM3.23, down four sen.

This article appeared in The Edge Financial Daily, October 27, 2009.