INVESTMENT HIGHLIGHTS

• Bags a contract for Coastal Road job worth RM466.7m

• The scope of job includes the construction and completion of the Bintulu-Jepak bridge crossing Kuala Kemena

• First job win this year, to contribute RM6.4m-RM8.0m to annual earnings until 2023

• We continue to like CMS, hence the BUY call

• Target price unchanged at RM4.13

Bags a contract for Coastal Road job. CMSB announced yesterday, that its unit PPES Works (Sarawak) Sdn Bhd (PPES Works) with its JV partner, China Communications Construction Company (M) Sdn Bhd (CCCC), has received and accepted a Letter of Acceptance (LOA) from the Sarawak State Government for a package under the Coastal Road project. The contract sums to a sizeable RM466.7m.

The scope of job includes the proposed construction and completion of the Bintulu-Jepak bridge crossing Kuala Kemena. The bridge is approximately 1,048 metres long with a four-lane double carriageway. Scheduled completion is within 48 months, from April 2019 to April 2023. Recall that the project was approved back in 2017.

First job win this year. This was the first project win announced this year for CMSB. Based on the 70:30 (PPESW: CCCC) JV structure, we estimate a total revenue worth RM326.7m will potentially be recognized by CMSB within the project period.

Earnings impact to CMS. Notably, CMSB’s equity will likely fetch approximately RM6.5m-RM8.2m of yearly PAT, arrived after imputing 8%-10% net margin of the total project value. The quantum ranged within our new job assumptions; hence we make no changes to our earnings forecasts.

More bridge projects in the pipeline? We understand that the Bintulu-Jepak bridge is one of the four bridges planned for construction in Sarawak. The others are Muara Lassa Bridge in Mukah, Rambungan Bridge in Lunde, and Batang Lupar Bridge in Samarahan-Betong. To note, the Coastal Road project involves the construction of 11 bridges with the main components are Btg Saribas bridge, Btg Rajang bridge, and Sungai Krian bridge. Completion is expected in ten years’ time with construction value estimated at RM5b.

Source: MIDF Research - 14 Mar 2019