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MAYBANK Investment Bank (Maybank IB) and RHB Research yesterday retained their buy calls on CB Industrial Product Holdings Bhd (CBIP) after its 1Q09 earnings came in within expectations.

Both brokerage houses deemed CBIP’s 1Q09 net profit of RM8.1 million to be “within expectations” despite it coming in only 15% of consensus expectations as 1Q tends to be the weakest quarter. The numbers were also down 8% year-on-year and had fallen 41% quarter-on-quarter (q-o-q), Maybank IB said.

“Generally, CBIP would record between 10%-15% of it full-year profits in 1Q, due to the lower project billing during the festive period and to the seasonally weaker fresh fruit bunch (FFB) production period in the first half of the year,” RHB said in a note yesterday.

CBIP registered better FFB selling prices q-o-q but that was insufficient to compensate for poor FFB productions caused by heavy rain in Sarawak, Maybank IB said. The engineering division anchored the bulk of 1Q09 operating profits while earnings before interest and tax (Ebit) margins expanded q-o-q on improved manufacturing contributions.

“We expect stronger subsequent quarters given the good crude palm oil (CPO) prices in 2Q, which are averaging RM2,608/ tonne thus far, and stronger 2H CPO production. CBIP mature oil palm estates expanded by 83% (4,680 hectares) with the Empressa acquisition in July 2008,” it added.

RHB too expected better numbers in subsequent quarters. “Going forward, while the recent US dollar weakening would be negative for CBIP, as about 35%-40% of its existing outstanding contracts are priced in US dollar, CBIP would stand to benefit from the recent decline in hot-rolled steel plate prices,” RHB said.

RHB maintained an outperform on CBIP with a RM4.30 target price, while Maybank retained a buy with a RM3.60 target price.

“Management remains confident of achieving RM250 million of new sales this year. The current order book is estimated to be RM220 million as at March 2009, to be delivered over the next 12 months,” Maybank IB added.

HwangDBS-Vickers Research, meanwhile, retained a hold call on CBIP but raised its target price to RM2.75 from RM2.10 after switching its valuation method from earnings multiple to discounted cash flow. It also raised group net profit forecast by 22.5% for FY09, 15.4% for FY10 and 5.9% for FY11, after factoring a higher CPO price assumption of RM2,300/tonne (+21%), RM2,300 (+15%) and RM2,330 (+5.9%) for those years, respectively.

CBIP climbed 13 sen to close at RM2.80 yesterday.


This article appeared in The Edge Financial Daily, May 26, 2009.

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