Investment Highlights

• We maintain our BUY call, forecasts and SOP-based FV of RM4.80 (Exhibit 1) for Cahya Mata Sarawak (CMS), following an analyst briefing yesterday where CMS provided positive guidance on the company's outlook in FY18, consistent with our upbeat forecasts.

• As Sarawak is poised to be a developed and industrialized state by 2030, CMS will continue to leverage its position by maximizing its core business division and strategic investment in order to deliver appealing earnings in the coming years.

• Earnings of core businesses like cement construction and building materials (i.e. aggregates) are expected to grow healthily in FY18, underpinned by the strong progress of Pan Borneo Highway. CMS also plans to increase its aggregates supply by 1.3mil MT annually in 2019 from its Sibanyis quarry, to cater to the strong demand from infrastructure projects like PBH & Baleh dam.

• We also believe CMS is able to secure the renewal of the state road maintenance concession, which is currently pending finalisation from the relevant authorities. To recap, CMS has been granted a 6- month state road maintenance extension till 30 June 2018. This is a transitional measure pending the negotiation and finalisation for the renewal of the concession on a longer term basis. Besides, the company is eyeing for maintenance work for PBH (under federal government jurisdiction). Also the construction division is expected to deliver better earnings on the back of accelerated billings from PBH.

• On the other hand, CMS highlighted its property division performance to remain resilient in the coming years mainly driven by: 1) development of multiple projects at the Isthmus; 2) undervalued landbank sales; 3) sturdy recurring income from hypermarket (Bandar Samariang) and lodging services in Samalaju Industrial Park.

• Meanwhile, the state government’s plan to embrace the digital economy is expected to benefit CMS immensely. CMS 50%-owned SACOFA is expected to grow organically on the back of bandwidth growth, rolling out of LTE sites and increased fiberisation from the combined RM1.5bil allocation from the state and federal governments.

Source: AmInvest Research - 27 Feb 2018