CMS, being the direct proxy to Sarawak, is set to be the prime beneficiary of the impending Sarawak state election in addition to the implementation of the Pan-Borneo Highway (Sarawak). It is also set to benefit directly and indirectly from Sarawak Corridor of Renewable Energy (SCORE)-related initiatives. We maintain our BUY recommendation and MYR5.86 TP (17% upside).

Excellent proxy to Sarawak. Early last month, Sarawak Chief Minister Tan SriAdenan Satem confirmed that he had met with the Election Commission and proposed 30 April 2016 as the date to hold state polls. We believe the robust numbers recorded by Cahya Mata Sarawak’s (CMS) road maintenance and materials and trading divisions indicate that it may eventually benefit from the MYR26bn Pan-Borneo Highway project. Its acquisition of a 50% stake in Sacofa SB in Oct 2015 may also see a full-year earnings contribution from FY16 onwards. Separately, we anticipate more contributions from its property division upon the completion of certain developments plus possible gainsstemming from land sales.

Forecast and key risks. We prefer to be prudent in our estimates despite the group’s FY15 results beating our and street estimates. Therefore, we make no change to our original projection. Meanwhile ferro silicon prices have plummeted in tandem with the broad weakness across the commodity complex – which presents a key risk that may dampen earnings of its 25%-owned OM Materials (Sarawak) SB (OMS).

Reiterate BUY. The lack of Sarawak-based listed companies at a time of animminent state election may put CMS in the spotlight, thereby justifying its premium valuations. We maintain BUY and our SOP-based TP of MYR5.86, implying 3x P/BV and 22x FY16F P/E.