Investment Highlights

• We maintain our BUY call, forecasts and SOP-based FV of RM4.45 (Exhibit 1) for Cahya Mata Sarawak (CMS).

• This follows the extension of its state road concession contract by 6 months from 1 January 2018 to 30 June 2018, based on the existing terms and conditions, with an estimated sum of RM87.7mil.

• The extension is a stop-gap measure pending the negotiation and finalisation for the renewal of the concession on a longer term basis.

• We maintain our SOP-based FV as the 6-month extension will only add 1 sen to it to RM4.46. However, if CMS is able to secure the renewal for the concession for another 15 years based on similar terms and conditions, our calculation shows that this could fetch an NPV of 35 sen (based on a discount rate equivalent to CMS's WACC of 8.9%), potentially boosting our FV by 8% to RM4.80.

• We continue to like CMS for: 1) the strong demand for cement and building materials underpinned by various mega infrastructure projects in Sarawak; 2) its steady growth of construction and road maintenance works including the Pan-Borneo Highway project awarded to CMS (JV with Bina Puri Holdings); and 3) sustained demand from its property development both in Kuching and Samalaju, and potential land sale of its current undervalued landbanks.

Source: AmInvest Research - 6 Dec 2017