INVESTMENT HIGHLIGHTS

• Results within expectations, accounting for 103.1% and 98.8% of ours and consensus’ yearly estimates

• 12MFY18 income largely underpinned by construction/road division

• Cement division seen hitting a snag, due to margin compression

• No change to our forecasts as earnings was within expectation

• Fundamentals is generally positive, which underscore its strength

• Maintain BUY with TP of RM4.13

Within expectations. In 4QFY18, CMS revenue fell by -12.7%yoy to RM496.4m. During the period, PATAMI was also lower by -5.7%yoy to RM57.1m. Nonetheless, we observed that the group’s fiscal result was broadly positive as its 12MFY18 PATAMI recorded growth of +27.7% to RM265.7m. The cumulative earnings came within expectations, accounting for 103.1% and 98.8% of ours and consensus’ yearly estimates.

12MFY18 income largely underpinned by construction/road division, growing by +20.8%yoy to RM554.2m. While its PBT growth was negligible at +0.2%yoy, the quantum was steady at RM90.4m (vs RM90.2m in the same period last year). We understand that strong income was largely recognized from the on-going construction of Pan Borneo Highway, the Miri-Marudi road rehabilitation and the Sarawak Museum projects.

Cement division hit a snag. Despite a healthy growth in revenue for Cement and Construction Materials segments, we take caution of the lower margins realized at PBT. This was mostly apparent in cement division, which accounted for 33.0% of the group’s total income in FY18. Whilst its revenue increased by +7.0%yoy, PBT however dropped -11.0%yoy to RM90.1m. The decline stemmed from repair costs at its clinker plant and the increase in imported clinker price due to supply shortages globally. Moving forward, we expect margin could trend better as we make allowance for possible reduction in cost/unit output. We think the approach is feasible, as management closely monitor and optimise its plant performance. We learned that management has set a sales target of 1.58 million MT in FY19 for the cement division.

Source: MIDF Research - 27 Feb 2019