Unique conglomerate set to take off. CMS is a conglomerate run by professional managers, with most of its businesses based in Sarawak. The launch of the "Sarawak Corridor of Renewable Energy" (SCORE) is set to take the state economy to new heights, as well as bolster CMS' cement, construction materials, construction and road maintenance divisions. The timely upgrade of its clinker plant will also boost the group's upstream volume, raise efficiency and more importantly, turn around the division, which was in the red in FY12.

Solid mid-term growth. CMS owns a large landbank around Kuching with good development prospects and a low book value that may potentially drive its medium-term earnings. It will participate directly in SCORE via 51%-owned Samalaju Property Development (SPD), whose first undertaking is the development of temporary worker camps, followed by a fast-track township in Samalaju Industrial Park (SIP). Meanwhile, its 20% stake in an OM smelting  project in SIP provides rich returns, thanks to 20 years of cheap power.

BUY, FV MYR4.21.Excluding exceptional items, CMS' financials have been improving steadily. Now the time has come for the group to charge up its profits as well as reward shareholders via its 30% dividend payout policy. CMS is certainly undervalued based on our conservative SOP. Applying a 20% discount and ex-OM's DCF value, we derive a FV of MYR4.21, implying 0.9xBV and 8x FY13 earnings. BUY.

Source: RHB