Significantly weaker 1Q16 results

The lackluster 1Q16 reported net profit of MYR1m was due to temporary earnings weakness at its core businesses and higher-than-expected associate loss from OMS mainly due to one-off forex losses. Excluding the forex losses, CMS 1Q16 core net profit would be higher, but the quantum of such losses will need to be ascertained. We maintain our earnings forecasts, HOLD call and MYR4.60 SOP-TP pending analyst briefing today.

Dragged by forex losses at associate

1Q16 net profit of MYR1m (-98% YoY, -99% QoQ) accounted for 0.4% of our 2016 forecast. The earnings shortfall was partly due to the higher-thanexpected associate losses from OMS. It could be mainly caused by oneoffs consisting of: i) unrealised forex losses from OMS’s payables denominated in MYR that had strengthened in 1Q16 and ii) realised forex losses from its forward contracts to hedge its MYR cost.

Core businesses affected by wet weather

1Q has seasonally been a slower quarter but 1Q16 was also affected by additional costs and adverse weather. The cement division was hit by higher repair and raw material costs. The construction materials division’s sales volumes were weak as its quarries were affected by the wet weather and slower construction activities and absence of lumpy earnings recognition from its pipes trading. Meanwhile, construction and road maintenance earnings were dragged by lower road construction works.

Earnings to recover in the following quarters

1Q16 core earnings would be higher if we strip off the one-off expenses. We expect CMS’ earnings to play catch up in the following quarters on recovery of its core businesses. However, it would likely disappoint our full-year net profit forecast due to the low 1Q16 core earnings. Our earnings forecasts are unchanged pending clarification on the weak 1Q16 results and OMS’ loan restructuring and refinancing.

Source: Maybank Research - 17 May 2016