Cahya Mata Sarawak Bhd
(May 19, RM5.42)
Downgrade to “hold” with a higher target price (TP) of RM5.70 from RM5.15: Cahya Mata Sarawak Bhd (CMS) recorded a net profit of RM57 million in the first quarter of financial year 2015 (1QFY15) (an increase of 48% year-on-year [y-o-y], an increase of 31% quarter-on-quarter [q-o-q], making up 24% and 22% of our and consensus full-year forecasts, respectively). 

Given the stronger-than-expected contribution from its construction materials division, CMS’ 1QFY15 results are slightly above our expectations, but in line with consensus.   

Second half of financial year 2015 (2HFY15) earnings will be better as CMS’ 25%-owned ferrosilicon smelter plant is gradually ramping up to full production by mid-2015. 

Profit before tax (PBT) of CMS’ construction materials division more than doubled to RM30.3 million in 1QFY15 (1QFY14: RM12.4 million) due to greater sales volumes of quarry aggregates and premix. 

Meanwhile, PBT of the road maintenance division also rose strongly by 47% y-o-y in 1QFY15, underpinned by more works undertaken and more roads maintained. 

We raise our FY15 to FY17F earnings per share (EPS) by 9% after assuming stronger growth for its construction materials and road maintenance divisions. 

Downgrade to “hold”, limited upside. Given the stronger growth, we now ascribe a higher 10 to 12  times price-to-earnings ratio (PER) for the construction materials and road maintenance divisions (from 9 to 10 times). 

Our sum-of-parts-based TP is revised to RM5.70, which implies 15.2 times FY16 PER (ex-net cash) and 2.4 times FY16 price-to-book value. 

The stock has gained about 36% year to date, offering limited upside for now. — Alliance DBS Research Sdn Bhd, May 19.

This article first appeared in The Edge Financial Daily, on May 20, 2015.