CAHYA MATA SARAWAK BERHAD , A Deeply Undervalued Stock, BUY

Highlights

Company Background Cahya Mata Sarawak Bhd (CMSB) is a construction conglomerate, involves in cement manufacturing, construction materials, construction, road maintenance, property development, trading, financial services and education.

Experienced management team CMSB is run by a group of professionals with years of experiences. Throughout the years, the management team has managed to exit a few non-core businesses and reduce its external indebtedness thus enabling the group to focus on its core businesses. It is extending its reach to new business opportunities arising through SCORE.

Cement and construction materials ' the bread and butter CMSB is the sole cement manufacturer in Sarawak with a total production capacity of 1.75m MT. It has imposed a 5% price hike in cement, effective 1 August 2011. It has also invested in bulk terminals in Sibu and Miri, as well as capacity expansion in clinker production to sustain and enhance its profitability in its cement business. In addition, the re-acquisition of CMS Roads and CMS Pavement Tech would help in securing strong recurring income to the group.

Samalaju Industrial Park ' the next growth frontier The group is poised to benefit from SCORE developments, particularly in Samalaju heavy industry node. The group has a direct investment in Samalaju Industrial Park ' teaming up with OM Holdings Bhd to build and operate a smelting plant with a total production capacity of 600,000MT/annum. In addition, the group is also providing a temporary workers camp at Samalaju before the township is ready to be developed. Indirectly, the group is also benefiting from supplying cement and various construction materials throughout the development process in Samalaju.

Undervalued landbank CMSB owns huge landbank in Sarawak. It owns a few plots of prime lands in Kuching city centre and two core property development projects, namely the Isthmus and Bandar Samariang. The RNAV per share of RM3.51 indicates that the share price of CMSB is undervalued.

Financial highlights For the past 6 years, the group's revenue grew at a meager CAGR of 5.0%. However, PATMI improved remarkably by CAGR of 77.2%, thanks to its improvements over the years, by fine-tuning its business focuses and continual expansion and improvements in its core businesses. On balance sheet wise, the group managed to pare down its gearing from as high as over 1.0x in FY2005 to the recent 0.15x in FY2011. The group is in net cash position with a net cash per share of RM1.59. Return of equity (ROE) improved over the years, from 0.81% in FY2006 to 8.8% in FY2011.

Undervalued stock With the SCORE development gaining momentum, CMSB is set to be one of the best proxies for SCORE play. Fundamentally, the stock is currently trading below its book value, at a P/BV of 0.5x. At a forward PER of 7.2x, the group is also trading at below its 3-year average PER of 8.5x. We are applying a 30% discount on its SOP of RM6.87, this huge discount reflect a geographical-concentration risk and potential political risk.


Source:Jupiter Securities Research 30 April 2012