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Thursday, December 01, 2016

CMSB: Earnings Rolled Back In

Results Update

Yesterday, CMSB announced a very good set of result. Its net profit roared back- up more than 6-fold q-o-q but still down 10% y-o-y to RM59 millionon the back of lower revenue, which dropped 11% q-o-q or 14% y-o-y to RM356 million.


Table 1: CMSB's last 8 quarters' P&L


Graph: CMSB's last 13 quarters' P&L

The main reason for the turnaround in the performance of its 25%-owned associate, OM Materials (Sarawak) Sdn Bhd. This company, which operates a ferro silicon alloys smelter in Samalaju Industrial Park, contributed a PBT of RM8.42 million to CMSB for QE30/9/2016 as compared to a LBT of RM48.90 million for 1H2016. This profit plus increased profit from JVs, Cement & Other Divisions had more than offset decreased profit from Contruction and Construction Material Divisions.
 

Table 2: CMSB's segmental analysis for QE30/9/2016 & QE30/6/2016
 
Valuation

CMSB (closed at RM3.57 yesterday) has a PER multiple of 26.3 times (based the last 4 quarters' EPS of 13.57 sen). However, the earnings of CMSB could be significantly higher once the Pan Borneo Highway construction work goes into full swing as CMSB is the main supplier of cement in Sarawak as well as being one of the bargest suppliers of building materials in that state. This plus the turnaround in OM Materials could easily help CMSB to sustain its earnings at the same level as QE30/9/2016, if not higher than that. Assuming CMSB's FY2017 is 20% higher than the earning of QE30/9/2016, then CMSB's FY2017 EPS would be about 26 sen. Thus, CMSB would now be trading at an attractive forward PER of 14 times. (Note: CMSB was trading at RM3.69 as at 10:30am.)
 
Technical Outlook

CMSB had a scorching rally from a low of RM0.30 in 2008 to a high of RM6.00 in July 2015. Since then, the share price had dropped back to form a Head and Shoulders formation with a neckline at RM3.30. As you may know, a Head and Shoulders formation is a well-known pattern in technical analysis that tends to culminate in a reversal. The reversal is confirmed if the share price were to drop below the neckline. However, a failure to break below the neckline would convert a reversal pattern into a continuation pattern where the stock would then continue on its prior uptrend.


Chart 1: CMSB's monthly chart as at Nov 30, 2016 (Source: ShareInvestor.com)

It is debatable whether CMSB has actually completed the right "shoulder" of a Head and Shoulders formation. However, if CMSB can break above the intermediate downtrend line, RR at RM4.00, we can accept that the Head and Shoulders formation was completed and that it had changed from a possible reversal pattern to a continuation pattern. And the ensuing move would then be on the upside as the dominant trend would once again be an uptrend. Let's wait and see whether the bullish trend will emerge.
 

Chart 2: CMSB's weekly chart as at Nov 30, 2016 (Source: ShareInvestor.com)

Conclusion

Based on good financial performance and exciting prospect, CMSB could be a good stock to ride on the construction boom as well as economic boom in Sarawak.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.

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