CB Industrial Product Holding Bhd
(Aug 22, 88 sen)
Downgrade to fully valued (from hold) with a lower target price (TP) of 72 sen (previously RM1.05): We downgrade our recommendation for CB Industrial Product Holding Bhd (CBIP) to “fully valued” with a lower TP of 72 sen. The group’s second quarter ended June 30, 2019 (2QFY19) net profit was below our expectations due to higher losses arising from its plantation-related businesses. We believe the losses could persist. Even though the order book of its engineering business remains healthy at RM406 million for now, persistently low crude palm oil (CPO) prices could hinder its ability to replenish its order book.
Our earnings estimates and TP are below the consensus as we expect the group’s earnings prospects to continue to be adversely impacted by its plantation segment, and the share of results of its joint ventures and associates. Besides that, we are concerned that persistently low CPO prices could hinder the ability of its engineering segment to secure contracts.
Sharper-than-expected losses from its plantation segment and JV and associates could present further downside risks to the group’s earnings.
We cut our FY19 to FY21 earnings estimates for CBIP by 12% to 53% upon imputing larger losses from its plantation segment and JV and associates. Our TP of 72 sen is pegged at 11 times forward earnings per share for the 12 months ending June 2020.
Failure to secure sizeable contracts to replenish its order book would be a risk to earnings. — AllianceDBS Research, Aug 22