Operational efficiency a saving grace to CMS’ revenue cycle, say analyst

The swift pickup in 2QFY17 enables CMS to support the group’s quarterly revenue of at least RM370 million which the research arm estimated as minimal revenue to meet its target quarterly earnings of RM68.5 million.

KUCHING: Cahya Mata Sarawak Bhd’s (CMS) revenue cycle has been viewed by analysts the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) as a saving grace to the group’s revenue cycle.

According to MIDF Research in a corporate update, despite the recent rout in US markets, CMS’ share price didn’t compress further in a lockstep.

“Its current fundamental and the expected growth story in Sarawak paint a good guidance on its operational efficiency and its share price momentum unveils an attractive position for entry,” the research arm said.

MIDF Research highlighted that the revenue suffered a glitch in the first quarter of financial year 2017 (1QFY17) through lower billings recognition and lower demand for construction materials.

The swift pickup in 2QFY17 enabled CMS to support the group’s quarterly revenue of at least RM370 million which the research arm estimated as minimal revenue to meet its target quarterly earnings of RM68.5 million.

“The management has succeeded in maintaining its operational margin above 18 per cent since 1QFY16 with the exception of 1QFY17 where operating margin shrunk to 10.9 per cent due to reduction of road length maintenance higher, low occupancy from the hotel operations in Samalaju and lower sales from construction materials division due to lack sluggish start of Pan-Borneo.”

In upcoming quarters, the research arm opined that CMS will be able to maintain the group’s operating margin between the range of 18 per cent to 20 per cent due to its reduction in clinker costs and expected pickup in building materials.

MIDF Research also highlighted another growth narrative looming is the demand for cement as Baleh Dam in Kapit is expected to start its construction in June, 2018.

“It is a 188-metre high concrete rockfill dam which is estimated to require circa 500 million cubic metre of concrete or 1.2 million tonnes of concrete minimally.”

The research arm estimated that the impact to contribution is circa RM400 million of to CMS’s over seven years or RM21.4 million quarterly and RM57 million annually.

All in, MIDF Research reaffirmed its ‘buy’ recommendation with a sum of parts (SOP) derived target price of RM4.62 per share.

“We continue to favour CMS as our top-pick as the growth narrative is attractive and its fundamentals are resilient,” the research arm said.

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