Maintain BUY on CMS with a higher TP of MYR6.00 (15.6% upside). Its upcoming 1Q15 results may see healthy growth, while a possiblylooming Sarawak state election may put the company in the limelight. CMS’ tight grip on the cement market, construction materials and road maintenance in Sarawak makes it set to benefit from a potential upsurge in construction and maintenance jobs ahead of an election.

• Possible decent start to FY15. Cahya Mata Sarawak (CMS) isscheduled to release its 1Q15 results next week. We expect its 1Q profit to come slightly short of our full-year estimate, when annualised. That said, we are not overly concerned as its key earnings driver is OM Materials (Sarawak) SB (OMS), whose contribution is only expected to come during the later part of this year. We also expect CMS’ 1Q earnings to register healthy growth both YoY and QoQ.
• State election could be just around the corner. In Malaysia, nationaland state elections are normally held simultaneously, except in Sarawak.While the current term of the Sarawak state assembly (under the leadership of new chief minister Tan Sri Adenan Satem) only expires in Jun 2016, a possible early state election is now a hot topic in the market.
• Best proxy to Sarawak. Construction and maintenance jobs normally increase ahead of any election to entice voters. Prime Minister Datuk Seri Najib Razak has just launched the MYR26bn Pan Borneo Highway project. CMS’ logistics prowess allows it to maintain a tight grip on Sarawak’s cement market. Apart from that, the group is also a key player in construction materials, construction and road maintenance of the state. Indeed, CMS could be a prime beneficiary of a possible upcoming state election.
• BUY, with a higher MYR6.00 TP. The lack of Sarawak-based listed companies at time of a possibly imminent state election may justify CMS enjoying a premium valuation based on scarcity. Therefore, we lift our P/E for its cement and construction materials divisions, and raise our RNAV for its property unit on top of rolling over our valuation to FY16. Our new, higher TP of MYR6.00 (from MYR5.32) implies 2.9x P/BV and 20.3x FY16 P/E. Reiterate BUY.