CBS Tech’s share price has reached our RM0.555 price target, which is based on a
conservative PER valuation. Given that investors are optimistic on the equity market
and after revising upwards our FY10 earnings forecast by 8.5%, we increase CBS
Tech’s fair value to the stock’s historic high of RM0.72, pegged at 9x FY10 PER. We
also do not discount the possibility of its FY10 PER expanding beyond 10x in the
near future if the equity market appreciates towards its peak valuation cycle.
Revising upwards earnings forecasts. We are now assuming RM4m in profit guarantee
for FY09, RM5.5m for FY10 and nil in FY11. Nevertheless, the change in assumption would
have no impact on the stock’s valuation as the FY10 difference is only an extra RM500k
and our Buy call is based on FY10. However, following our recent meeting with
management, we realised that our forecasts for the company’s existing businesses had
been too conservative. Therefore, after making changes to the profit guarantee
contribution, we revise our earnings higher by 65.5% for FY09 and 8.5% for FY10.
Meanwhile, we are not making changes in our FY11 earnings estimates. CBS Tech
currently has an orderbook of RM16m and is bidding for contracts worth RM30m.
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