INVESTMENT HIGHLIGHTS

• Cahya Mata Sarawak’s (CMSB) 9MFY16 earnings lagged forecasts

• 9MFY16 results dragged by lower revenue/PBT from all segments

• Maintain earnings estimates whilst keeping an eye on next quarter’s results

• We maintain our BUY recommendation with an unchanged TP of RM4.36.

9MFY16 earnings below expectations. CMSB’s 9MFY16 core earnings went below expectations at RM107.3m (-30%YoY) compared to the preceding period. All in, its 9MFY16 earnings came in lower than estimates registering 41.3% of ours and 65.0% consensus’ of full year forecast respectively.

Weak earnings contributed by severe drop in all segments. We reckon the decreased earnings were spurred by; i. Slow transfer of orderbook revenue and recognition from Pan Borneo package and slowdown in clinker and cement sales PBT of RM76.9m (-13.8%YoY) ii. Lower recognition from road maintenance PBT of RM57.6m (- 35.3% YoY) due to higher cost and lower construction activities

Impact on earnings. We maintain our earnings forecasts at this juncture anticipating the upcoming full year results and improvements of sales in cement segments. We anticipate an uptick in the property segment in the next quarters reflecting sales from The Isthmus, Kuching.

Recommendation. Hence, we maintain our BUY recommendation with SOP-based TP of RM4.36 per share premised on our sum-of-parts (SOP) valuation.

Source: MIDF Research - 1 Dec 2016