CMS, being the direct proxy to Sarawak state, is set to be the prime beneficiary of Pan Borneo Highway (Sarawak). Reiterate BUY andMYR5.86 TP (17% upside). Aside from the lucrative material supply contract, it may win a roadworks package and longer roads formaintenance. Furthermore, cement usage is also set to escalate, thus potentially lifting its cement division earnings.

• Bidding for roadworks. Cahya Mata Sarawak (CMS) is one of the prequalified contractors tendering for the remaining 10 roadworks packages for Phase 1 of the Pan Borneo Highway (Sarawak). While it hascompleted more than 20 roadworks projects in Sarawak, we do not discount the possibility of CMS partnering with a West Malaysiancontractor to strengthen its credentials and winning rate. We project that each package could range from MYR1bn to MYR1.5bn. As a Sarawakbased company needs to lead the project with a 70% equity stake andassuming a 7% net margin, this may contribute additional MYR49m-70m to its bottomline over the next four years.
• All eyes on lucrative material supply contract. As a major supplier ofvarious construction materials like premix, ready-mix concrete, crushed aggregates for roadworks and steel reinforcement in the state, CMS also has the upper hand to win lucrative material supply contracts. As thesole cement manufacturer in the state, the company is also set to benefit from the escalating cement demand. There is also the possibility of CMS having longer roads to maintain if its road maintenance concessions, slated to expire in 2018, are eventually renewed.
• Key risk. Ferro silicon prices have plummeted in tandem with the broad weakness across the commodity complex, hence dampening earnings ofits 25%-owned OM Materials (Sarawak) SB (OMS).
• Reiterate BUY and MYR5.86 TP. We value CMS based on SOP computation. We keep our earnings estimate that translate to a TP of MYR5.86, implying 3x P/BV and 22x FY16F P/E. Being the prime beneficiary of the multi-billion MYR Pan Borneo Highway (Sarawak)project may put CMS under the spotlight, thereby justifying its premium valuations.