Review

• Excluding an unrealised foreign exchange gain of RM12.7mn and other non-core items of RM7.3mn, CMSB’s 1HFY23 core profit of RM48.9mn came in below expectations, accounting for 33.2% and 26.8% of our and consensus full-year estimates. The variance was mainly due to higherthan-expected loss incurred by the phosphate division.

• YoY, 1HFY23 core profit dropped 60.8% to RM48.9mn despite revenue was 33.6% higher at RM566.2mn. The weaker bottom line was mainly due to lower profit contribution from property development, road maintenance, and phosphates divisions. Additionally, the group also saw lower profit contributions from associates following the disposal of OM Materials Sarawak last year.

• For the property development division, the PBT fell by 65.7% YoY to RM4.0mn from RM11.7mn a year ago due to slower sales of properties. Meanwhile, the weaker earnings performance for the road maintenance division was largely due to lower sales and gross profit. On the other hand, the phosphate division recorded a higher LBT of RM55.5mn, mainly due to commissioning costs.

• QoQ, 2QFY23 core profit fell 65.8% to RM12.5mn although revenue was 5.4% higher at RM290.5mn. The softer earnings performance was mainly attributed to lower gross margin from the cement division.

Impact

• Maintain earnings forecasts pending an analyst briefing later.

Outlook

• The demand for building materials in Sarawak is expected to remain strong, underpinned by local infrastructure projects such as the Pan Borneo Highway, Coastal Highway Project, and Baleh Dam.

• For the new phosphate plant, we believe the commercial operations are likely to be delayed further, given that the group is currently still disputing with Syarikat SESCO Bhd over the power purchase agreement.

Valuation

• We put our call Under Review, pending an analyst briefing later, with an unchanged target price of RM1.22/share based on SOP valuation

Source: TA Research - 1 Sept 2023