RHB Research has raised its target price for CB Industrial Product Bhd (CBIP) after taking into account its net cash balance, following the release of its FY08 results.

The brokerage yesterday raised its sum-of-parts (SOP) valuation on CBIP to RM3.45 from RM3.40 while maintaining an outperform call after its earnings came in in line with expectations.

While the company did not propose a final dividend when releasing its 4Q08 results, RHB said it was “not too worried”, and pointed out that CBIP “has a tendency to postpone its dividend a little while after the results are reported”.

“Note that management plans to maintain its net dividend payout of 30%, although we are more conservative in our estimates and had based our projections on a 20% to 25% net payout. This translates to gross yields of 7%-8% per annum,” RHB said.

CBIP had earlier in the year declared and paid a five sen interim tax-exempt dividend.

It is also worth noting that RHB adjusted its forecasts by lowering its other income and raised its assumptions for “other cost” to be in line with the percentage of revenue recorded in FY08.

The research house reduced its FY09 forecast by 4.7% while keeping FY10 forecast relatively unchanged.

To summarise, CBIP’s net profit grew 30% year-on-year on the back of a 41.2% revenue growth, which came mainly from a 110.9% jump in contributions from the plantation  division.

Revenue from its oil mill and engineering and equipment division was up 6.1% year-on-year, but its contribution to operating profit fell 3.2% due to a decline in margins to 12.3% from 13.5% resulting from weakening US dollar and higher steel costs.

RHB said main risks for the stock include a significant pick-up in oil mill engineering contracts due to faster-than-expected economic recovery and plantation investment in Indonesia as well as Malaysia.

Other possible risks include a stronger-than-expected margins for the oil mill engineering division due to a steeper-than-expected fall in steel prices and the strengthening of the US dollar, weather abnormalities causing a rise in CPO prices and other vegetable oils, as well as a reversal in crude oil prices.

CBIP shed eight sen to close at RM1.82 yesterday.