KEY INVESTMENT HIGHLIGHTS

• CMSB recorded RM467.2m revenue in 3QFY2019

• FY19 revenue largely underpinned by cement division

• Construction/road division booked revenue of RM502.5m in FY19, a decline of -9.3%yoy

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

• 3sen/share dividend proposed

• Maintain BUY call but at lower TP of RM2.21

RM1.7b revenue logged in FY20, a slight improvement of +1.7%yoy compared to RM1.7b in FY18. However, CMSB’s profit before tax (PBT) shrank -32.6%yoy to RM251.05m despite the increase in revenue. The decline was due to a significant decrease in aggregate contribution from its associate companies. Cumulatively, PATAMI for FY19 came in below expectations at RM160.3m (-38.9%yoy) which accounted for 81% and 85% of our and consensus respective full year estimates.

FY19 revenue largely underpinned by cement division. The revenue of cement division rose +7.8% to RM601.6m in FY19 compared to RM557.9 million in FY18. However, despite an increase in revenue, PBT declined -18.9%yoy to RM73.1m. The reduction was caused by increased production costs mainly due to (1) scheduled maintenance, and (2) higher raw material prices. To note, an increase in imported clinker prices was attributed to higher demand from regional market coupled with reduced supply from China.

Construction/road division booked revenue of RM502.5m in FY19, a decline of -9.3%yoy. Consequently, PBT shrank to RM42.3m (-53%yoy) in the same quarter from RM90.4 in the year before. The factors that steered down the profitability of construction/road division were (1) costs revision for the Pan Borneo Highway project, and (2) retrenchment compensation amounting to RM4.2m. It is also worth noting that CMSB is bidding for new projects related to Sarawak’s costal road network and the second trunk road projects.

Source: MIDF Research - 27 Feb 2020