Cahya Mata Sarawak remain sector top picks thanks to Sarawak’s revived construction

KUCHING (Sept 9): Cahya Mata Sarawak Bhd (Cahya Mata Sarawak) remains the sector top pick for RHB Research due to its direct exposure to the revival of construction activities in Sarawak, given its prominent role as the leading cement provider in the state.

In a sector note, the research firm said out of the three companies that reported results, Cahya Mata Sarawak exceeded expectations, Malayan Cement Bhd (LMC) was in line while Press Metal Bhd (Press Metal) slightly missed.

“LMC’s full year core net profit came in within our, but beat consensus estimates at RM510.7 million, growing more than 100 per cent year on year (y-o-y).

“Financial year 2024 (FY24) revenue saw commendable growth of 18.3 per cent from the improvement in sales volumes for both cement and ready-mixed concrete.

“Margin-wise, PBT margin improved by 7.8ppts on the moderation in coal prices and better costs management.”

Meanwhile, CMS’ 1H24 bottomline surprised street, at RM74.2 million. While 1H24 revenue dropped 1.9 per cent y-o-y, as the prolonged rainy season slowed construction activities, this was offset by margin expansion, benefiting from lower clinker costs and enhanced operational efficiencies.

RHB Research saw that bulk cement prices have stabilised and continue to sustain at RM380 per tonne as of July, and it foresee this remaining stable given the expected demand from the Pan Borneo Highway, Sabah Sarawak Link Road, Kuala Lumpur-Singapore High-Speed Rail, Johor-Singapore Rapid Transit System and Mass Rapid Transit 3.

The research house remained sanguine on the cement industry’s prospects given the inherent synergy with the construction and property sectors.

“With a range of infrastructure projects planned across the country, building materials companies — especially cement producers — are well-positioned to capitalise on the spillover benefits.”

Meanwhile, it said the value of construction work done amounted to RM38.9 billion in 2Q24, which grew by 20.2 per cent y-o-y and 5.7 per cent q-o-q.

This is the highest value in 18 quarters. In terms of subsector, civil engineering saw the largest rise, up 25.2 per cent y-o-y – likely due to the ongoing mega infrastructure projects such as Light Rail Transit 3, Pan Borneo Highway Sarawak Phase 1 and East Coast Rail Link.

Residential buildings subsector recorded a 19.2 per cent y-o-y growth – reflecting continued strong demand amid ongoing property developer launches.

“We remain optimistic on the cement industry’s prospects given the inherent synergy within the construction and property sectors.

“With the slew of anticipated infrastructure projects in the country, building materials companies — especially cement producers — are well-positioned to capitalise on the spillover benefits.”