INVESTMENT HIGHLIGHTS

• Mixed FY16 earnings

• Earnings dragged from lack of catalysts

• Estimates for FYE17/FYE18 remains intact

• Nonetheless, we maintain our BUY recommendation with an adjusted TP of RM4.62 per share

FY16 earnings below expectations. CMSB’s FY16 PATANCI went below expectations at RM209.8m (-15.4%YoY) compared to the preceding period. However, its FY16 earnings came in mixed; lower than our estimate but higher than consensus’ registering 81.0% of ours and 124.1% consensus’ of full year forecast respectively. The deviation of from our FY16 forecast of RM259m compared to FY16’s earnings amounted to RM49.2m (-18.9%) is attributable to our higher estimates of progress billing for Pan Borneo works and cement sales.

Earnings dragged by lack of catalysts. Insipid FY16 results are attributable to decline in revenue from all three major segments of construction, cement and roadworks. Recall that CMSB (JV Binapuri) won the Pan Borneo Sarawak Sg. Awik to Bintagor package for a period of 48-months starting from July, 2016. Hence, we are not overly concern with the current results as the project is still at its infancy. Furthermore, developments in the state of Sarawak are still on-going progressively albeit a change in the state’s political leadership.

FYE17/FYE18 earnings forecast remains intact. Having said that, we maintain our forecasts for FYE17/FYE18. While FY16 earnings dropped against FY15’s, CMSB’s quarterly earnings of RM130.2m (+53.5% YoY) illustrate a dint of rising profitability. Considering that, we reckon it is premature to revisit our earnings assumptions. The slight decline in revenue for cement segment of RM563m (-6.3% YoY) and the improvement of its EBIT of RM105.3m (+2.1%YoY) elucidates cyclical impact of cement demand but tapered by the acumen of management’s cost reduction by managing plant capacity. Meanwhile property development’s surprising revenue of RM23.5m (+18.7% YoY) is relieving as it provides clarity in the direction of the segment which has been very weak for the past quarters. In sum, we reckon that CMSB will be able to comfort a ‘hard landing’.

Recommendation. Hence, we maintain our BUY recommendation with SOP-based adjusted TP of RM4.62 per share.

Source: MIDF Research - 27 Feb 2017