• 6MFY17 earnings below expectations

• But PATAMI margins improved

• FYE17/FYE18 earnings forecast remains intact

• Altogether, we revised our recommendation to BUY with a TP of RM4.62 per share

6MFY17 earnings below expectations. CMSB’s 6MFY17 PATAMI went below expectations at RM87.3m (+880.9%YoY) compared to the preceding period. Its 6MFY17 earnings came in weaker; lower than ours and consensus’ estimates registering a dismal 32% of ours and 37.1% consensus’ of full year forecast respectively. The deviation of from our 1HFY17 forecast of RM136.15m is attributable to our lower revenue from key segments of cement, construction materials and road maintenance.

But PATAMI margin improved. Note that, CMSB’s the Pan Borneo Sg. Awik - Bintagor (64.4km) progress is still minimal (culvert and drainage completion stage). Thus, we reckon that CMSB will be able to normalize its fitful revenue in past quarters in FYE18-FYE19 to balance the spell of earnings blip. In spite of weaker revenues from key segments, CMSB has managed to reduce costs illustrated by the PATAMI improvement from cement segment; RM47.0m (53.8% of TPATAMI* on the back of +19.4% PATAMI margin or +4.0ppts). Meanwhile, road maintenance segment fell to RM36.0m (-6.0%YoY) but improved on its PATAMI margin of + 22.7% or +2.2ppts compared to preceding period. In sum, its 6MFY17 TPATAMI margin of +13.0% (11.8ppts) expanded from a mere +1.2% in 6MFY16 consequently we view this as catalytic sign for management’s cost-cutting measures and earnings recovery taking place.

FYE17/FYE18 earnings forecast remains intact. In view of that, we maintain our forecasts for FYE17/FYE18. 6MFY17 earnings of RM87.3m increased slightly against 6MFY16’s of RM8.9m (+880.9%YoY) showing sprouts of earnings revival. Moreover, the rise in earnings for property segment of RM26.1m (+271.3%YoY) backed by +23.7% of PATAMI margin or 29.8% of TPATAMI clarifies recovery in CMSB’s property sales – a good sign for future property take-up rates. That said, we reckon it is untimely to trim our earnings assumptions.

Recommendation. Altogether, we raise our recommendation to BUY with SOP-based TP of RM4.62 per share.

Source: MIDF Research - 28 Aug 2017