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Cahya Mata thrives on govt-backed projects
AmInvestment Research | 01 Dec 2017 00:30
Strong demand for cement and building materials underpinned by various mega infrastructure projects in Sarawak is positive for CMS

Cahya Mata Sarawak’s (CMS) nine-month FY17 net profit came in within expectations at 71% of our full-year forecast. Its M9FY17 core net profit increased 9% year-on-year (yoy) underpinned by stronger performance from (i) cement’s improved margins on lower costs of inputs for coal and imported clinker; (ii) higher billings from the Rivervale project and an improved property sales and hypermarket rental from Bandar Samariang; (iii) expectation of rising production volume from associate OM Materials (Sarawak) Sdn Bhd as the plant is ramping up towards full production by year-end, and (iv) improved returns from CMS Opus and two private equity funds partially negated the weaker performance from the construction & road maintenance joint venture (JV).

On the other hand, the building materials division continued to languish due to lower sales volume and delays in the execution of the JKR 2017 Malaysian Road Records Information System project in certain divisions, as well as the temporary closure of a quarry plant due to soil erosion and the relocation of another premix plant.

We continue to believe that CMS is well-positioned to benefit from the government development plans such as the Sarawak Corridor of Renewable Energy’s growth nodes, Pan Borneo Sarawak highway, proposed light-rail transit and bus rapid transit in Kuching and the digitalisation of the state’s economy.

We like CMS for (i) the strong demand for cement and building materials underpinned by various mega infrastructure projects in Sarawak; (ii) its steady growth of construction and road maintenance works including the Pan-Borneo Highway project awarded to CMS (JV with Bina Puri Holdings Bhd), and (iii) sustained demand from its property development both in Kuching and Samalaju, and the potential unlocking of its undervalued land bank via disposal. Maintain buy with a fair value of RM4.45.