KUALA LUMPUR: CB Industrial Product Holding Bhd’s (CBIP) earnings growth in its current financial year ending Dec 31, 2009 (FY09) could moderate to the slowest rate in five years but new contracts could be coming in soon.
“We are looking at a 10% earnings growth but it could also be flat because the uncertainty is still there,” its managing director Lim Chai Beng told The Edge Financial Daily in an interview.
Analysts’ mean estimate of 40 sen in CBIP’s earnings per share for FY09 is 11% below FY08’s EPS of 45 sen. It produces and constructs palm oil mills and equipment. CBIP’s patented Modipalm mill employs the continuous sterilisation process.
The company only went into the plantation business in 2006 with a 3,720ha oil palm estate in Miri but the segment has become an important contributor to its bottom line.
For the financial year ending Dec 31, 2008, CBIP registered a 30% earnings growth with net profits of RM60.6 million.
Both the engineering and plantation divisions contributed equally to the company’s pre-tax profit in FY08 as high steel prices eroded the engineering division’s margins while high crude palm oil prices in the first three quarters of the year bumped up the plantations’ performance, Lim said.
CBIP’s acquisition of new estates in 2008 expanded the plantation division’s contribution to the group. The company now owns some 14,500ha of plantation estates in Miri, Sarawak. The average maturity of its palms is nine years.
“CPO prices are now important to us. In 2008, the engineering division was affected by high steel price which affected the bottom line as we had many jobs,” he added.
Although the company had locked in its steel requirements in advance, it still needed to replenish stock even as prices went up.
“You lock in 80%, you still need to get the balance 20%. Last year, prices went up 50%, which is abnormal. If it’s 5% to 10%, we can absorb since material content is only 30% of the contract. We also bought some expensive materials,” said Lim.
While customers have agreed to steel cost escalation of around RM7 million, the amount has not been billed as most of the jobs are only nearing completion now. Lim said the company’s average price for steel purchased last year was RM3,500 per tonne. It is now buying steel at RM2,700 per tonne.
This year, Lim expects the trend to reverse with the plantations division and engineering division contributing 30% and 70% respectively to the company’s operating profits.
The engineering division is expected to perform better than last year as steel prices have stabilised. He is confident of getting RM200 million to RM300 million worth of orders this year which will keep the engineering division busy until the first quarter of 2011. Its current order book of RM280 million should last till the first quarter of 2010.
“We expect more contracts coming in soon. People have been holding back, hanging on given high steel prices and the financial crisis but palm trees don’t stop fruiting.
“They will need mills. We were holding back because we had a lot of jobs. We slowed down a bit and stopped taking contracts for eight months but we have started taking orders now,” Lim said.
The new contracts for Modipalm mills are expected to come from Malaysia and Indonesia. CBIP’s own Modipalm mill was recently completed at its Sachiew plantations and the company is building another in Empressa oil palm estate.
He expects CPO prices to average between RM1,900 and RM2,000 this year. The company’s cost per hectare of CPO produced is RM1,300 per tonne currently.
Lim said CBIP was also exploring opportunities to acquire green field plantation overseas, particularly in Papua New Guinea, as prices of assets had come off from their highs.
“We’re looking for value acquisitions where there are opportunities or good assets currently as we have funding available to us. We’ll look for expansion overseas and going for greenfield plantations because our existing plantations are able to sustain the business,” he said.