CBIP confident of getting tax-exemption benefit renewal

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KUALA LUMPUR: Specialist palm oil mill manufacturer CB Industrial Product Holding Bhd (CBIP) is confident that its new waste solution technology that focuses on plantation waste with zero discharge will obtain a renewal of its pioneer-tax status, said managing director Lim Chai Beng.

“This is a completely new technology that we have invested RM30 million in research and development of a zero-discharge mill. Now, we are putting in another RM10 million to develop a pilot mill,” he said.

“I am very positive on our engineering business. I hope in two years, we can see very good financial results. If we start [using the new technology] in 2016, we will see a big improvement in earnings in 2017,” said Lim.

According to Lim, the renewal of this tax status should be “around the time” of the group’s current pioneer tax status, which was obtained from developing the Modipalm continuous sterilisation process (Modipalm) that will expire in April next year.

Any losses in the interim would be cushioned by CBIP’s strong order book, he said.

“It will impact [our earnings] a little bit for the year. Hopefully, our forecast growth will be able to soften the tax implication in 2015,” said Lim.

Lim’s assurance may offer some comfort to investors who have been concerned that should CBIP fail to renew its pioneer tax status, it would drastically impact the company’s future earnings.

Alliance DBS Research said in a report dated Sept 15 that without a pioneer tax-exemption benefit, CBIP’s earnings could fall by 11%. An earlier report by RHB Research in April said CBIP stands to lose as much as 20% of its net profit without the tax benefit.

Lim said CBIP’s palm oil engineering business, to date, has an order book of RM500 million, which will last the company for 1½ years. CBIP expects to secure more contracts before end-2014 as confidence in its Modipalm technology grows among existing and new clients.

CBIP secured its first contract from palm oil plantation conglomerate, Sime Darby Bhd, earlier this year to build a 30-tonne/hour mill in Liberia. Lim said a second plant is  being built in Thailand now.

“I think we can expect more contracts from the same client if we serve them well. They will need new mills and replace older ones. CBIP can also offer support services for the Modipalm technology after the mills are built,” he explained.

CBIP’s palm oil mill production is already at full capacity. It intends to expand its capacity with a new production plant — to be completed in mid-2015 — to take on more jobs from oil palm plantations. The added capacity, said Lim, should help the company grow its market share from 30% currently to 50% in three years.

“In the past, we did not have much capacity to get new customers. The inflow of orders this year matches our expansion plan,” he said.

Besides its engineering and equipment business, CBIP’s long-term income will be sustained via its venture into the plantation business in Kalimantan, Indonesia.

CBIP currently owns 65,000ha of plantation land, of which only 6,000ha have been planted. It is in the midst of securing another 21,000ha of plantation land. Lim said all its land bank should be fully planted in seven years.

“CBIP is growing at this stage so we need to reinvest our retained profits. The idea is to buy a big asset in [a] business we are familiar with and plantation is the closest to our business. This will be the second leg of our business in the long term,” he added.

This article first appeared in The Edge Financial Daily, on October 20, 2014.