INVESTMENT HIGHLIGHTS

• Results below expectations

• Revenue dragged by all key segments

• Estimates for FYE17/FYE18 remains intact

• Nonetheless, we downgrade our recommendation to Neutral with a TP of RM4.62 per share

FY17 earnings below expectations. CMSB’s 1QFY17 PATAMI went below expectations at RM12.4m (-6.0%YoY) compared to the preceding period. However, its 1QFY17 earnings came in weak; lower than ours and consensus’ estimates registering a dismal 4.5% of ours and 5.3% consensus’ of full year forecast respectively. The far cry deviation of from our 1QFY17 forecast of RM68.2m is attributable to lower sales from construction materials and trading segment which has yet to pick-up from the Pan Borneo packages.

Revenue dragged by all key segments. Insipid 1QFY17 results are attributable to decline in revenue from all three major segments of construction, cement and roadworks. Recall that the Pan Borneo progress is still at its infancy. Hence, we are not overly concern with the current results as the project is CMSB will be able to close the gap in upcoming quarters. Despite the weak revenue from key segments, the management has managed to reduce costs illustrated by the PBT improvement from RM22.9m in 1QFY16 to RM38.5m (+68.1%YoY). CMSB’s PBT improvement could also mean that capex from cement segment has normalized. The cement segment’s 1QFY17 PBT of RM14.5m increased from 1QFY16’s RM9.6m (+51.0%). But its contribution to PBT of 37.6% in 1QFY17 is still lower than preceding periods of 41.9%.

FYE17/FYE18 earnings forecast remains intact. Having said that, we maintain our forecasts for FYE17/FYE18. 1QFY17 earnings of RM12.4m increased slightly against 1QFY16’s RM11.6m (+6.0%QoQ) showing bud of rising earnings and, its weaker earnings trend for the first quarter. Considering that, we reckon it is premature to revisit our earnings assumptions. The decline in revenue for construction materials of RM71.2m (-6.3% YoY) and the tepid PBT of RM8.4m (-50.3%YoY) elucidates cyclical impact of demand emanating from Pan Borneo progress and its capex for the additional production line for Sibanyis quarry.

Recommendation. Altogether, we downgrade our recommendation to Neutral with SOP-based adjusted TP of RM4.62 per share

Source: MIDF Research - 16 May 2017