PP 7767/09/2010(025354)

Malaysia
RHB Research
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts Note 24 August 2010

MARKET DATELINE
Share Price : RM3.33
CB Industrial Product Fair Value
Recom
:
:
RM4.05
Outperform
Expect Stronger 2H (Maintained)

Table 1 : Investment Statistics (CBIP; Code: 7176) Bloomberg: CBP MK

Net Net
FYE Turnover profit EPS Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 331.5 40.4 29.4 (33.6) 11.3 - 8.6 2.0 17.1 47.1 3.0
2010f 584.4 59.7 43.4 47.4 7.6 46.0 6.6 1.6 21.7 34.5 4.2
2011f 675.5 72.6 52.7 21.6 6.3 51.0 5.5 1.3 22.1 34.8 5.1
2012f 698.0 75.8 55.1 4.4 6.0 56.0 5.2 1.1 19.7 24.9 5.4
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ In line, 2H usually the stronger half. CBIP’s 1HFY10 net profit was in
line with our estimate, coming in at 42% of our FY10 forecast, but below RHBRI Vs. Consensus
Above
consensus estimate, coming in at 38.5% of consensus FY10 forecast. We
In Line
expect stronger earnings in the 2H, in line with CBIP’s traditional
Below
earnings patterns. CBIP declared a second interim dividend of 5 sen (tax
exempt), which is in line with our expectations. Issued Capital (m shares) 135.2
Market Cap (RMm) 450.3
♦ Net profit rose 45.8% yoy, on the back of a revenue decline of 12.5% Daily Trading Vol (m shs) 0.3
yoy in 1HFY10. The decline in revenue was mainly due to lower progress 52wk Price Range (RM) 2.35-3.46
billing in the oil mill engineering and equipment division (-14.2% yoy) Major Shareholders: (%)
and the others division (comprising its firefighting equipment sales, - Lim Chai Beng & family 28.5
54.5% yoy), although this was offset slightly by the 21.5% yoy rise in Govt of Singapore Invtmt
0.8
Corp
revenue recorded in its plantation division on the back of higher CPO
prices. Operating profits rose by 0.9% yoy due to higher margins
recorded in the plantation division of 32.3% (from 21.8% in 1HFY09),
FYE Dec FY10 FY11 FY12
offset slightly by lower margins in the others division of 9.6% (from EPS chg (%) - - -
12.6% in 1HFY09) and the oil mill engineering division of 14.5% (from Var to Cons (%) (5.7) 3.4 (1.7)
14.6% in 1HFY09) caused by the impact of the weaker US$ against the
RM. PE Band Chart

♦ Risks. Main risks include: (1) a significant decline in oil mill engineering
contracts due to slower-than-expected economic recovery and plantation PER = 16x
PER = 12x
investment in Indonesia as well as Malaysia; (2) a stronger-than- PER = 8x
PER = 4x
expected rise in steel prices and weakening of the US$, resulting in
weaker-than-expected margins for the oil mill engineering division; (3) a
fall in CPO and other global vegetable oil prices caused by weather
abnormalities; and (4) a reversal in crude oil prices and thus CPO prices.
♦ Forecasts. No change to our forecasts. CBIP has an unbilled orderbook Relative Performance To FBM KLCI
of approximately RM300m currently and is bidding for another RM150m
worth of contracts, which should last it for the next 18 months. FBM KLCI

♦ Investment case. Our SOP-based target price is unchanged at RM4.05

(see Table 3) and we maintain our Outperform recommendation on CBIP.
CB Industrial
We believe progress billings would start to pick up from 2HFY10 onwards,
as CBIP’s progress billing for the oil mill engineering division is no longer
held back by the building of its own CPO mill as it was in FY09.

Hoe Lee Leng

(603) 92802184
hoe.lee.leng@rhb.com.my

Please read important disclosures at the end of this report. Page 1 of 3

Table 2 : Earnings Review

FYE Dec (RMm) 2Q09 1Q10 2Q10 % qoq % yoy 1H09 1H10 % yoy Comment

Turnover 93.7 72.7 76.7 5.6 (18.1) 170.7 149.4 (12.5) Reduction in revenue coming mainly from oil mill
engineering and equipment division (-14.2% yoy)
and the others division (comprising its firefighting
equipment sales, -54.5% yoy). However, this was
offset slightly by the 21.5% yoy rise in revenue
recorded in its plantation division
Profit from 15.7 14.9 14.7 (0.8) (6.1) 29.7 29.6 (0.3)
operations
EBIT 15.5 14.1 14.6 3.8 (5.3) 28.5 28.7 0.9 Higher margins recorded in the plantation division
of 32.3% (from 21.8% in 1HFY09), offset slightly
by lower margins in the others division of 9.6%
(from 12.6% in 1HFY09) and the oil mill
engineering division of 14.5% (from 14.6% in
1HFY09) caused by the impact of the weaker US$
against the RM
Other op income 0.2 0.8 0.1 (86.8) (57.7) 1.2 0.9 (30.0)
Interest expense (1.7) (1.3) (1.2) (1.9) (26.7) (3.1) (2.5) (20.7) In line with decrease in net gearing to 44.4% in
2Q10 (versus 61.8% in 2Q09)
Associates (5.3) 1.2 1.5 29.3 (128.4) (9.3) 2.7 100.0 Plantation associates (Bahtera Bahagia, Kumpulan
Kris Jati and Solar Green) showed improvements
on qoq basis, as CPO price increased
Exceptional items - - - - -
- -
Pretax Profit 8.7 14.8 15.0 1.7 72.7 17.2 29.8 72.8 Flow through from EBIT, lower interest expense
and return to profitability for the associates and JV
Taxation 0.7 (2.1) (2.1) 3.0 (390.4) 0.8 (4.2) n.m.
Minorities (0.4) (0.5) (0.0) (98.7) (98.2) (0.9) (0.6) (39.2)
Pre-acq profit - - - - -
Net Profit 9.0 12.2 12.9 6.0 42.5 17.2 25.0 45.8 Flow through from PBT and higher effective tax
rate

EPS (sen) 6.7 9.0 9.6 6.5 44.2 12.7 18.7 47.5
Gross DPS (sen) 5.0 5.0 5.0 10.0 10.0
NTA/Share (RM) 1.67 1.92 1.96 1.67 1.96

Operating profit 16.7 20.4 19.2 17.4 19.8

margin (%)
EBIT margin (%) 16.5 19.4 19.1 16.7 19.2
PBT margin (%) 9.3 20.3 19.6 10.1 19.9
Effective tax (%) (8.4) 14.0 14.2 (4.9) 14.1

Table 2. Fair Value Calculation

Target PER (x) RMm
Plantations 12x CY11 420.0
Oil mill engineering & construction 6x CY11 267.3
Net Debt @ end-1QFY10 (141.5)
TOTAL 545.8
Issued shares (‘m) 135.2
RM/share 4.04

Page 2 of 3
 Table 3. Earnings Forecasts Table 4. Forecast Assumptions
FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10f FY11F FY12F

Turnover Oil mill division revenue 15 11 7

331.5 584.4 675.5 698.0 growth (%)
Turnover growth (%) (19.1) 76.3 15.6 3.3 CPO Selling Price (RM/t) 2,500 2,700 2,500
FFB Selling Price (RM/t) 500 550 500
Operating Profit 55.0 72.3 84.2 89.2
Op Profit Margin (%) 16.0 12.0 12.2 12.5

EBITDA 65.6 78.7 92.3 98.0

EBITDA margin (%) 19.8 13.5 13.7 14.0

Depreciation (12.4) (8.3) (9.7) (11.1)

Associates (5.5) 4.5 9.5 8.4
Net interest costs (5.8) (6.7) (6.6) (6.4)
Exceptional items (5.5) - - -

Pretax Profit 49.1 70.1 87.1 91.1

Tax (6.8) (8.5) (12.6) (13.4)
PAT 42.3 61.6 74.5 77.7
Minorities (1.9) (1.9) (1.9) (1.9)
Net Profit 40.4 59.7 72.6 75.8
Net Profit (ex-EI) 40.4 59.7 72.6 75.8
Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

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of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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