Our RNAV is conservative, as we have excluded the value of its investments for future recurring income. Pegging a 30% small/mid cap discount to our RNAV of RM10.45/share, the stock is worth RM7.31/share, implying upside of 37%. Catalysts are renewed investor interest in its dominant position in Sawarak and progress of its OM Materials venture, which should transform its earnings profile from 2016.

A play on Sarawak's Score 
CMS is an established player in the state of Sarawak, with three core divisions: 1) cement; 2) construction materials/trading; and 3) construction/road maintenance. The group started off in 1974 as a pure cement producer and has evolved into an infrastructure conglomerate. Today, CMS is Sarawak's largest integrated infrastructure company. It is well positioned to benefit from the Sarawak Corridor of Renewable Energy (Score) over the longer term, in our view. It owns over 4,000 acres of land with the potential to realise land-sale gains.

Future boost from investments 
What could add the most to its earnings would be a 20% investment in OM Materials Sarawak - the first ferrosilicon alloy, manganese ferroalloy and sintered manganese ore facility in Score. CMS expects RM80m-100m of new associate profits from this project from 2016, representing 45-57% boosts to its average pretax profits in the past three years, by our estimates. There are other potential new ventures in the pipeline backed by its net cash position.

Undervalued 
The stock has surged 60% YTD, spurred by renewed investor interest in the group's dominant position in Sarawak, as well as progress of the group's 20%-owned venture in OM Materials, which is now a more promising alternative than its failed venture with Rio Tinto.

Source: CIMB Daybreak - 16 August 2013, Full PDF Report