KUALA LUMPUR (Nov 11): Hong Leong IB Research (HLIB) has maintained its Hold rating on CB Industrial Product Holdings Bhd (CBIP) with a lower target price of RM2.13 (from RM2.27) and said it continued to see bright earnings visibility at the oil mill engineering division offsetting the higher tax expense.
In a note Tuesday, the research house said this was underpinned by its all-time-high order book, the increasing harvesting areas of oil palm plantations as well as management’s ongoing efforts in expanding the division’s capacity.
HLIB said while CBIP’s management remains confident in securing sizeable contracts to replenish order book for the SPV division, 2015 would be a relatively quiet year for this division.
“In our opinion, potential new contracts may not arrive in time to replenish its depleting order book given the lumpy and irregular nature of this division’s contract flow.
“Management highlighted that planting development works will continue (albeit at slower pace of ~3,000 ha p.a. vs. 6,000 ha p.a. previously), although there are still uncertainties on foreign shareholding cap in Indonesia,” it said.
HLIB said it reduced its FY12/15-16 net profit forecasts by 18.4-25.9%, largely to reflect: (i) higher tax expense; and (ii) lower earnings at the SPV, which more than offset slightly higher contract wins and EBIT assumptions at the palm oil mill engineering division.
“SOP-derived target price on the stock is lowered by 6.2% (from RM2.27) to RM2.13, post adjustments made in our valuation methodology for its plantation assets in Malaysia and net profit forecasts.
“Maintain Hold recommendation,” it said.