Cahya Mata Sarawak : The jewel of Sarawak BUY (Amended Copy)
The jewel of Sarawak conglomerates, Cahya Mata Sarawak (CMS), focuses in a wide range of businesses such as cement, construction materials and trading, construction and road maintenance, ICT, property development and strategic investments. CMS is one of the key local participants of SCORE development projects and the Pan-Borneo Highway project, in addition to its existing businesses with the state government. CMS will continue to achieve stellar growth driven by the following:
1. As Sarawak’s sole producer of cement and leading construction materials supplier,. CMS has an entrenched position in supply of building materials; 2. Steady recurring income from road maintenance in the state through road maintenance concessionaires; 3. Owns undervalued land banks which have the potential for property development or can be sold for a hefty premium over the book cost; 4. Active involvement in energy-intensive projects and holds a substantial stake in OM Materials and Malaysia Phosphate Additives Sarawak which reflects good prospects in the long run; 5. Robust dividend payout to investors. CMS continues to reward its investors with a dividend payout ratio of at least 40% for FY16 as outlined in their CMS dividend payout policy.
We project FY17 earnings to grow by 39% underpinned by: 1) Increasing demand in cement and building materials contributed by mega infrastructure projects; 2) Steady growth of construction androad maintenance works due to the recent Pan-Borneo Highway project awarded to CMS (JV with Bina Puri Holdings); and 3) Stable demand from its property development both in Kuching and Samalaju, rising occupancy in Samalaju lodges and potential land sale of its current undervalued land banks. We initiate CMS with a BUY call with an SOP-based FV of RM5.15.