Investment Highlights

• We maintain our BUY call, forecasts and SOP-based FV of RM4.45 (Exhibit 2) for Cahya Mata Sarawak (CMS).

• CMS’s 9MFY17 net profit came in within expectations at 71% of our full-year forecast, but missed market expectations at only 65% of the full-year consensus estimates.

• 9MFY17 core net profit increased 9% YoY underpinned by stronger performance from: 1. Cement – Lower sales volume was more than offset by improved margins on lower costs of inputs, i.e. coal and imported clinker. 2. Property – Higher billings from the Rivervale project, and improved property sales and hypermarket rental from Bandar Samariang more than offset the weaker performance of hotel operations in Samalaju Industrial Park. 3. Associates – Loss from CMS’s 25% associate, OM Materials (Sarawak) narrowed on higher demand and selling prices, coupled with a lower production cost (i.e. electricity). Meanwhile, production volume is expected to increase as the plant is ramping up towards full production (from 14 to 16 furnaces) by the end of the year. 4. JVs – Improved returns from CMS Opus and two private equity funds, partially negated the weaker performance from the construction & road maintenance JV.

• On the other hand, the building material division continued to languish due to lower sales volume and the delays in the execution of the JKR 2017 Malaysian Road Records Information System (MARRIS) project in certain divisions, as well as the temporary closure of a quarry plant due to soil erosion and the relocation of another premix plant.

• We continue to believe that CMS is well positioned to benefit from government development plans such as the SCORE's growth nodes, Pan Borneo Sarawak highway, proposed LRT and BRT in Kuching and digitalisation of the state's economy.

• We 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 the potential unlocking of its undervalued landbank via disposal.

Source: AmInvest Research - 30 Nov 2017