KEY INVESTMENT HIGHLIGHTS

• CMSB recorded RM467.2m revenue in 3QFY2019

• In the quarter, the group`s operating profit has shown a decline of -13.5% to RM83.9m

• Despite recording higher revenue growth of +9.5%yoy, cement division reported lower PBT at RM65.5m in 9MFY19 (9MFY18: RM70.4m)

• Construction and road maintenance earnings dropped by - 21%yoy to RM52.8m

• Maintain BUY call at TP of RM3.12

RM467.2m revenue logged in 3QFY2019. During the period, CMSB recorded RM72.8m in PATAMI, showing -6.6%yoy decline from the same period last year. Cumulatively, PATAMI for 9MFY19 amounted to RM154.9m (-25.7%yoy) which accounted 78% and 82% of our and consensus respective full year estimates. The drop in earnings was within our expectation.

During the quarter, operating profit had a notable decline of - 13.5% to RM83.9m. This was due to the worsening performance of construction materials (-1.4%yoy), construction & road maintenance (- 13.8%yoy) and property development (-69.6%yoy) segments. Whilst property division has registered a notable drop in the quarter, its 9MFY19 numbers nonetheless declined at slower rate of -9.3%yoy thanks to the profit recognition from a land sale in previous quarters, steady ongoing sales of condominium and apartments as well as higher rental income from unsold apartments in Samalaju.

3QFY19 revenue from cement division increased by +11.6%yoy to RM164.3m. Cumulatively, it brought the 9MFY19 revenue to RM448.5m (+9.5%yoy), with the growth largely driven by higher sales volume of cement and concrete products at +3% and +61% respectively. However, operating profit slipped -7%yoy to RM65.5m due to margin contraction which was attributable to the higher imported clinker cost (raw material) and coal cost (fuel).

In 3QFY2019, construction and road maintenance segment earnings slipped by -20.7%yoy to RM 52.75m. This was on the back of -7% lower revenue during the period. We also noted that there were arrears received for instructed works for periods between 2014- 2017 amounting to RM3.5m in 3QFY2018 and RM0.46m received in 3QFY019 which led to the reduction by -2%yoy of gross profit margin.

Source: MIDF Research - 27 Nov 2019