Saturday, May 28, 2011

CMSB Is Undervalued

CMSB is a conglomerate involved in cement manufacturing, trading in construction materials, construction, road maintenance, property development, financial services, technology, education and other services.

Its vision is: To be the Pride of Sarawak.

The key statistics as at March 31, 2011 are as follows:
1Q2011: Vs 1Q2010
Revenue: RM 226.367m Vs 177.633m
Profit before tax: 43.095m Vs 21.347m
EPS : 9.30 sen Vs 3.68 sen
NTA: RM4.08
Current Assets: RM1,267,736,000 of which 189,614,000 is in cash
Current Liabilities: RM378,669,000
Borrowings: RM299,668
Share Capital: RM329,446,000
Par Value per share: RM1

In 2010, the government has allocated RM4.7 billion for the construction of roads & bridges, and RM2.6 billion for water supply & sewerage services. It is hopeful that more will be allocated in 2011. These government spendings will be a boast for the bottom line of the company. Looking at the above figures, there is every reason to believe that company will do well going forward. The stock was last traded at RM2.30 per share cum dividend of 10% less tax. At this price, the stock is undervalued.

Technically speaking, the stock was seen to be in demand when trading started last Friday. It is now coming out of a well-formed base. Demand is likely to continue when trading resume come Monday morning.

Review of performance (Excerpt from filings with Bursa)
The Group’s recorded a pre-tax profit of RM43.10 million for the three months ended 31 March 2011, compared to a pre-tax profit of RM21.35 million for the 3 months ended 31 March 2010. The higher contribution was registered by the Construction Division and there was a gain on acquisition of CMS Roads Sdn. Bhd. and CMS Pavement Tech Sdn. Bhd. of RM12.21 million.
The profit before tax for period ended 31 March 2011 was contributed by all Divisions except Property Division. The Manufacturing Division, being the largest contributor to the Group’s profitability, continued to achieve healthy results. The Construction Materials Division continued its excellent performance, recording a hike in profit before tax riding on the back of the government’s spending on continued projects.
The Construction Division registered a jump in profit primarily because of the re-acquisition of the profit-making entities namely CMS Roads Sdn. Bhd. and CMS Pavement Tech Sdn. Bhd., which contributed positively in the quarter under review. The higher contribution was also due to the profit from government’ s spending on periodic road maintenance work and road rehabilitation.
The Group’s associate in the steel fabrication and manufacturing of steel pipes industry, namely KKB Engineering Bhd continued its sterling performance in the 3 months period ended 31 March 2011. However, the Group’s other associate in the investment banking industry reported a lower profit for the current period compared to previous corresponding period.
B2. Material changes in profit before taxation for the quarter
The Group’s profit before tax of RM43.10 million in the quarter under review was 19% lower than the profit before tax of RM53.16 million in the preceding quarter. This was because the Construction and Manufacturing Division registered exceptionally high profits in the preceding quarter.
However, the Group’s associate in the investment banking industry returned to profit this quarter as compared to a loss in the preceding quarter primarily due to the loss incurred previously as a result of impairment made in respect of the investment bank’s loans and advances and impairment of investment in an associate.

In the stock market, nothing is certain. It is said that the only thing certain is uncertainty. Therefore, do exercise caution when you buy. Know your risk tolerance and don't be controlled by greed.