Thursday 20 March 2014

CMSB still has upside

Those who read my previous postings on CMSB knew that I am bullish on its potential and outlook.

After reading RHB's latest report on CMSB dated 19 March 2014, I still think there is upside to the stock

RHB has raised the target price from RM9.22 to RM10.37. Even though the share price has almost tripled since a year ago, I think there is still upside in the share price given its growth potential and conservative assumptions in the SOP valuation by RHB.

In a report released today, Maybank has raised the target price from RM8.40 to RM10.50. Net profit for FY14/15/16 is expected to jump 18.6%/21.1%/21.6% respectively.

Besides, I think the valuation by RHB is slightly conservative, given that:

1. Its cement division in Sarawak which is a monopoly business and has high barrier of entry due to logistic challenges, was valued at only 16.6x, as compared to about 19x for West Malaysia

2. Target price will be raised further in a few months' time when the valuation base year is rolled forward to FY15 (cement division and construction material division valued using FY14 earnings)

3. Assuming no extension to the state road maintenance concession was in my opinion unlikely. With their expertise, experience, dominance, and maybe their substantial assets for the maintenance works, I think it is way too conservative to assume no extension at all. At most, the scope of works would be reduced, I think.

4. Assume 50% of OM base case estimates for its OMS smelting plant. And mind you the valuation for OMS has yet to be included in arriving at RM10.37 target price

5.Have not factored in any value for its property development in Samalaju

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