• 1Q15 results, with strong 48% YoY growth, were in line.
• Will continue to ride on robust construction activities in Sarawak
• Earnings forecasts unchanged, but BUY call/TP under review.

What’s New

1Q15 core net profit of MYR57m (+48% YoY, +31% QoQ) accounted for 22% of our FY15 full year forecast. 1Q has seasonally been a slow quarter. The strong YoY EBIT growth (+28% YoY, +18% QoQ) was driven by strengthened cement EBIT (+44% YoY, +5% QoQ) due to higher cement sales volume. Construction materials division also posted higher EBIT (+145% YoY, +17% QoQ) due to some spill over projects from 2014 that could be lumpy. Construction and road maintenance division’s EBIT also grew 54% YoY (+3% QoQ) due to longer length roads maintained. These offset lower earnings from the Samalaju temporary accommodation operations.

What’s Our View

Construction works in Sarawak is expected are pick up strongly as the Pan Borneo Highway construction project would kick off soon and the 11MP could provide for more infrastructure projects in Sarawak. CMS would be the main beneficiary of the robust construction activities in Sarawak as the key construction materials supplier in Sarawak. In addition, it is also eyeing more construction works including the Pan Borneo Highway worth MYR27b.

CMS’ proposed acquisition of 50% Sacofa S/B, concession owner of telecommunication towers in Sarawak, and an additional 5% stake in OMS would enhance its recurring earnings. Leveraging on its strong balance sheet, potential acquisitions and new investments would further re-rate the stock. Management is also looking to raise its dividend payout ratio in the medium term. Our MYR5.00 SOP-TP is under review pending completion of its acquisition of Sacofa S/B and an update with management. We have yet to factor in potential earnings from Sacofa S/B.

Source: Maybank Research - 19 May 2015