Investment Highlights

• We maintain our BUY call, forecasts and SOP-based FV of RM4.80 (Exhibit 2) for Cahya Mata Sarawak (CMS).

• The company’s FY17 core net profit of RM215.2mil met our forecast, but missed consensus estimates by 6%.

• CMS’s FY17 PBT rose 10% YoY on the back of strong performance from:

1. Construction & road maintenance – Recognition of accelerated billings of Pan-Borneo highway project and Miri-Marudi road rehabilitation project, and the increase in the state road length maintained.

2. Property – Higher billings from the Rivervale and Raintree Square projects, 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 – Losses from 25%-owned 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 15 to 16 furnaces) by 1H18.

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 saw a decline in both sales and earnings 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 in 1H17. In addition, the temporary closure of a quarry plant due to soil erosion and relocation of another premix plant further aggravated the sales volume. Also, a one-off provision expense of RM20mil for soil erosion remedial works was made in 4Q17.

Source: AmInvest Research - 26 Feb 2018