CMS reported poorer 2Q15 results post the GST implementation, on itsscheduled clinker plant maintenance and absence of land sales. That said, we are keeping our BUY call and TP at MYR5.55 (13% upside). This is because the looming state election may put the company in the limelight. CMS is also set to benefit directly and indirectly from SCORE related initiatives.
Slower 1HFY15. Cahya Mata Sarawak (CMS) posted a net profit of MYR98.1m in 1H15, 6.6% lower YoY and short of our/consensusestimates. Customers may have withhold purchases after front-loadingtheir spending ahead of the implementation of the 6% goods and services tax (GST), which took effect on 1 Apr. Apart from that, the scheduled maintenance at its clinker plant and stronger USD (ie more expensive clinker imports) have led to a higher operating cost at its cement division. More importantly, there were also no land sales to datevis-à-vis c.MYR24m profit from land disposals in 1H14.
Overall outlook remains decent. Moving forward, we do expect higherearnings from its road maintenance and materials trading divisions ahead of the impending state election (by Jun 2016). Nonetheless, we expect lower contributions from its property division on the general slowdown of the property market. We also see lower earnings for its cement unit and 25%-owned OM Materials (Sarawak) SB (OMS) on the weaker USD/MYR exchange rate and the selling price of ferro silicon. That said, we continue to like CMS as it is the best proxy to benefit from initiatives rolled out under the Sarawak Corridor of Renewable Energy (SCORE). We still expect core profit to rise 26.7%/16.4% in FY16/FY17respectively after it slowed down to 6.3% in FY15.
Maintain BUY, with a MYR5.55 TP. Meanwhile, the lack of Sarawakbased listed companies at a time of an imminent state election may put CMS under the spotlight - thereby justifying its premium valuations based on scarcity. We are keeping our SOP-based TP of MYR5.55,implying 2.8x P/BV and 21x FY16F P/E. We reiterate our BUY call. For the time being, we believe theironing out of its proposed acquisition of a 50% stake in Sacofa SB with better terms involved may prompt a re rating in its TP.
Source: RHB Research - 27 Aug 2015
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