CBIP (7076) - Oil Palm Rising Star: CBIP

Oil Palm Rising Star: CBIP

CBIP started to venture into oil palm plantation business in 2005 with a reported small plantation size of just 2,650 hectare.

Lets look at the financial performance of its plantation segment in order to know its history.

FY	Revenue	PBT
2005	8.9	-1.4
2006	14.7	2.6
2007	25.7	12.8
2008	53.2	21.8
2009	60.3	14.8
2010	80.5	27.4
2011	132.7	36.2
2012	0	148.3
2013	0.2	-5
2014	1.0	-11
9M15	1.4	-3.9

As we can see from the table above, CBIP's plantation revenue increased progressively from RM8.9mil in 2005 to RM132.7mil in 2011.

Its plantation segment also recorded increasing profit in this period of time.

Suddenly there was zero revenue in 2012 but PBT was RM148.3mil.

This was because CBIP sold all its wholly-owned plantation asset in Malaysia in 2012 with a disposal gain of RM154.4mil. Without this, its plantation segment actually registered a small operating loss of RM3.8mil.

Apart from about 7,000 ha plantation in associate & JV companies in Sarawak, from 2012 onward, everything started from zero in which CBIP started to plant oil palm trees in those huge landbanks in Kalimantan Tengah it acquired at the same time.

So, we can say that CBIP just started a whole new page on its plantation business in 2012.

It's like a newcomer in plantation.

Below are some brief history of CBIP plantation business.

2005

• Started plantation business with size of 2,650 ha

2007

• acquired 100% of Sanchiew plantation

2008

• acquired 100% of Empressa S/B
• acquired 30% of Bahtera Bahagia S/B (associate company until today)
• acquired 30% of Kumpulan Kris Jati S/B (associate company until today)
• Total planted area reached 14,500 ha

2009

• acquired 85% of PT Sawit Lamandau Raya

2011

• disposed 100% of Sanchiew & Empressa (which are main revenue contributors)
• acquired 94% of PT Berkala Maju Bersama (17,382 ha plantation land)
• acquired 94% of PT Jaya Jadi Utama (15,430 ha plantation land)

2012

• acquired 94% PT Gumas Alam Subur
• acquired 94% PT Karun Sumber Rezeki

2014

• acquired 94% PT Mayangan Jaya (21,674 ha plantation land)

It's clear that before 2012, CBIP's main plantation revenue came from Sanchiew & Empressa which were entirely sold in 2012.

Bahtera Bahagia & Kumpulan Kris Jati are its associate companies until today.

The management grabbed the opportunity to acquire huge plantation landbank in Indonesia by selling its profit-making smaller prime estates. I think it was a good move.

Now CBIP has 86,715 ha of plantation landbank and this can make it a significant player in the industry.

The management target to own 100,000 ha plantation in Indonesia, and set a target to plant 6,000 ha of oil palm per year.

Year	New Planting (ha)	Total Planting (ha)
2012		1700
2013	2700	4400
2014	1670	6070
9M2015	504	6574

Up to FY14 which ended on Dec14, CBIP has only planted a total of 6,070 ha of oil palm on its Indonesia land.

After 9 months into 2015, it has only planted an additional 504 ha, which was way below its target.

If we assume new planting to start in 2012, the oldest trees are just 3-4 years old which are essentially immature.

So, I think its plantation segment will continue to register loss in the next 1-2 years especially when CPO price stays lowish.

Its plantation in Indonesia is expected to generate revenue in the first half of 2017 when its first mill is expected to be completed.

I came to know CBIP since many years ago. It gives me an impression of a good company though I have never invested in it before.

CBIP has 3 business segment which are:

• Palm oil mill equipment & work (POME)
• Retrofitting special purpose vehicles (RSPV)
• Oil palm plantation

POME is the main revenue & profit contributor for CBIP, with 75% revenue and 90% profit came from this segment in FY14.

Its Modipalm brand of palm oil mill seems to have a significant competitive edge, with higher OER, lower manpower requirement and offers more cost-saving compared to conventional mills.

CBIP's POME's order book is quite stable. It can always maintain the outstanding orders value at above RM400mil with consistent new orders.

Up to today (end Dec15), it has secured about RM450mil of new orders in 2015 and its latest outstanding orderbook stands at above RM550mil

However, this figure only represents about one year plus of earning visibility as its revenue from POME segment a year is about RM400mil.

Its Modipalm POM pioneer status has expired since Feb15 so its effective tax rate has normalised to 25%.

Previously the company's tax rate was just around 7%.

So, its latest 2 quarters' net profits have reduced significantly due to higher tax rate.

Nevertheless, it is expected to regain the pioneer tax status with its zero discharge waste management system for its POME division.

CBIP's RSPV division is about designing, manufacturing and maintaining special purpose vehicles such as ambulance, fire fighting, utility, military vehicles etc.

It contributes less than 20% of CBIP's revenue and even less in profit attributable to common shareholders as 49% net profit in this division will go to minority interest.

Personally I don't really like this division and will just ignore it. It will become more negligible when contribution from plantation starts to grow.

I opine that CBIP's management team is great. The company's cash flow and balance sheet is also strong.

Despite "poor" financial results in the last 2 quarters, CBIP's share price does not drop. This shows that most investors know this company well, and know what to expect.

At RM2.03 now, it is trading at actual PE of 11.5x, and potential forward PE of more than 15x.

The company bought back it shares regularly since mid-2015, which might show that the management thinks the company is undervalued at below RM2.

Without a doubt, CBIP is a solid company and worth for long term investment. 

Its 86,000 ha of plantation landbank is not a small size.

However, investors might not see desirable growth perhaps until year 2018, which is an "inauspicious" year which marks the 10 years anniversary of global financial crisis.

The positive catalyst for CBIP in the near term should be the pending new pioneer tax status for its POM.

I'm not sure when can it be approved since the government seems to look for more money frantically from anywhere possible to counter its reducing income.

The negative aspect of CBIP's plantation might be its slow new planting. 

Though it plans for 6,000 ha new planting a year, so far it only planted 500 ha in 2015. That's way out of target.

If it continues like that, then I think its attractiveness will be reduced.

Though I still do not own any CBIP shares, I foresee that I will be part of the company in the future.

CBIP (7076) - Oil Palm Rising Star: CBIP
http://bursadummy.blogspot.my/2015/12/oil-palm-rising-star-cbip.html