INVESTMENT HIGHLIGHTS

• Share price avoided the recent lockstep fall

• CMSB efficient and resilient operations

• Baleh Dam project commencing

• Maintain BUY with TP of RM4.62 per share

Share price didn’t fall in lockstep. Despite the recent rout in US markets, CMSB’s share price didn’t compress further in a lockstep. Its current fundamental and the expected growth story in Sarawak paint a good guidance on its operational efficiency and its share price momentum unveils an attractive position for entry. The two (2) key appealing points for CMSB are as follows;

1. The operational efficiency is a saving grace to the CMSB’s revenue cycle. The revenue suffered a glitch in the 1QFY17 through lower billings recognition and lower demand for construction materials. The swift pickup in 2QFY17 enables CMSB support its quarterly revenue of at least RM370.0m which we estimate as minimal revenue to meet our target quarterly earnings of RM68.5m. The management has succeeded in maintaining its operational margin above 18.0% since 1QFY16 with the exception of 1QFY17 where operating margin shrunk to 10.9% due to reduction of road length maintenance higher, low occupancy from the hotel operations in Samalaju and lower sales from construction materials division due to lack sluggish start of Pan-Borneo. In upcoming quarters, we opine that CMSB will be able to maintain its operating margin between the range of 18.0% - 20.0% due its reduction in clinker cost and expected pickup in building materials. (Figures 1 and 2)

2. Baleh Dam project commencing. Another growth narrative looming is the demand for cement as Baleh Dam in Kapit is expected to start its construction in June, 2018. It is a 188m high concrete rockfill dam which is estimated to require c.500m cubic metre of concrete or 1.2m tonnes of concrete minimally. We estimate that the impact to contribution is c.RM400m of to CMSB’s over 7 years or RM21.4m quarterly and RM57m annually.

Valuation. We reaffirm our BUY recommendation with an SOP derived target price of RM4.62 per share. We continue to favour CMSB as our top-pick as the growth narrative is attractive and its fundamentals are resilient.

Source: MIDF Research - 13 Feb 2018