CB Industrial 9MFY17 profit within expectations

This article first appeared in The Edge Financial Daily, on November 30, 2017.
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CB Industrial Product Holding Bhd
(Nov 29, RM1.82)
Maintain buy call with an unchanged target price (TP) of RM2.30 per share:
Stripping off foreign exchange losses of RM9.8 million, the group posted core earnings of RM16.6 million (-20% year-on-year [y-o-y], -34% quarter-on-quarter [q-o-q]) for the third quarter of financial year 2017 (3QFY17). The drop in core profit was mainly due to lower contributions from its palm oil engineering (POE) segment on the back of lower project billing during the quarter, and lower contributions from its special purpose vehicle (SPV) operation owing to increased production cost.

This brings its nine months of FY17 (9MFY17) earnings to RM68 million, accounting for 68% of our full-year forecast. Nonetheless, we deem the 9MFY17 results to be within expectations given that the fourth quarter is traditionally the strongest quarter for the group due to the accelerated drawdown of its order book.

The group’s current order book for the POE segment remains strong at about RM424 million, which is sufficient to keep CB Industrial busy in the first half of FY18, even without any sizeable new orders.

The order book of the group’s 51%-owned SPV operation stays healthy at about RM254 million.

Another catalyst for the group would be the potential commercialisation of its new plantation waste management system with zero discharge by FY18.

The group declared a second interim dividend of three sen, which is within our expectations.

We make no changes to our earnings estimates. We are maintaining our “buy” recommendation with a TP of RM2.30. Our TP is pegged to 12 times FY17F price-earnings ratio. We continue to like the stock for its hands-on management team and solid execution track record.

Failure to secure sizeable contracts to replenish its order book could be an earnings risk. — AllianceDBS Research, Nov 29