AmWatch - CB Industrial : Profit driven by improvements in project completion BUY, 29 May 2015

STOCK FOCUS OF THE DAY

CB Industrial : Profit driven by improvements in project completion         BUY

We upgrade CB Industrial Product Holding Bhd (CBIP) from HOLD to BUY with an unchanged fair value of RM2.33/share. Our fair value is based on a fully-diluted FY16F PE of 14x. CBIP’s results were within our expectations but above consensus estimates.

CBIP’s effective tax rate was low at 4.9% in 1QFY15 compared with 7.6% in 1QFY14. Although Modipalm Engineering’s tax pioneer status had expired in 2QFY15, the group is confident that it would be able to secure a tax pioneer status for its zero effluent palm oil mills in four weeks’ time. The new tax pioneer status is expected to replace the previous one, which had expired.

CBIP’s turnover inched down by 2.8% YoY to RM117.6mil in 1QFY15 mainly due to the 41.6% fall in revenue of the retro-fitting division. The unit did not receive any new contract last year. Mill manufacturing division’s revenue expanded by 11.1% YoY to RM98.5mil in 1QFY15 while its pre-tax profit grew by 5.4%. This was in spite of a decline in the value of contracts secured in FY14 compared with FY13. CBIP said that the YoY increase in the unit’s pre-tax profit in 1QFY15 was due to improvements in project completion and billing.

CBIP received an estimated RM270mil worth of mill contracts in FY14 compared with RM320mil in FY13. Unbilled sales of the mill manufacturing division stood at RM445mil as at end-December 2014. We understand that the mill manufacturing division would be able to sustain 1QFY15’s profit growth as the group had secured more contracts since 2QFY15. We estimate that up to May 2015, CBIP had secured more than RM200mil worth of contracts.

Pre-tax profit margin of the manufacturing unit edged down from 26.7% in 1QFY14 to 25.3% in 1QFY15. The softer operating margin came in spite of low steel prices. Steel is estimated to account for more than half of CBIP’s production costs. Plantation division recorded a smaller loss of RM0.9mil in 1QFY15 versus RM2.2mil in 1QFY14.

Others :

Titijaya Land : Fresh launches coming up in 2HCY15           BUY

AirAsia : Gaining altitude               BUY

Media Chinese : Controlling costs in challenging times    HOLD

Malayan Banking : Decent set of 1Q results          HOLD

KPJ Healthcare : 1Q in line; announces 1.75 sen dividend               HOLD

Kimlun Holdings : Improved manufacturing margin in 1Q               HOLD

IHH Healthcare : 1Q results in line; expansion on track    HOLD

Magnum : Topline and dividend surprises             HOLD

Genting Malaysia : Decline in earnings of Malaysia and UK units HOLD

Genting Bhd : RWLV to start construction at year-end     HOLD

QUICK TAKES

Al-Aqar Healthcare: Steady start to the year        HOLD

Malt Liquor Sector : Neutral on ban of liquor sales at medical halls             OVERWEIGHT

NEWS HIGHLIGHTS

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WCT Holdings : To acquire land in Klang for RM118m

UMW Holdings : To diversify revenue streams