CMS remains best proxy to the rapid development activities of Sarawak

RHB Research also believed that both divisions may eventually benefit from the RM26 billion Pan Borneo Highway project that would help to sustain the high earnings base recorded in finanical year 2015 (FY15) moving forward.

“Meanwhile, we think that the commissioning of its new grinding plant in Mambong, Sarawak could help to improve profitability of its cement unit in FY16.

“Its October 2015 acquisition of a 50 per cent stake in Sacofa Sdn Bhd, the sole telecommunication tower service provider in the state, would also see full-year earnings contribution from 2016 onwards,” the research house said.

On forecast and key risks, RHB Research pointed out that CMS’ response to Bursa Malaysia’s query on the reason for the group’s subscription to OMS’ CPS was to help meet the latter’s cash flow demand.

RHB Research suspected OMS may have suffered deeper losses than the research house had initially projected.

The research house revised down its FY16F and FY17F earnings by 14.8 per cent and 7.6 per cent respectively but kept its FY18 estimates intact, after cutting its forecast on OMS.

“OMS remains the single largest risk within the group as the extent of its operating losses remains uncertain and we cannot discount the possibility of a wider loss than our newly-revised numbers,” the research house stressed.

Nevertheless, RHB Research continued to like CMS as the best proxy to the rapid development activities in Sarawak.

“However, potential losses at OMS may dampen investor sentiment on the stock,” it said.