The basic materials sector receives a boost with a new OVERWEIGHT rating, reflecting optimism based on recent performance and sector dynamics. Cahya Mata Sarawak emerges as the top pick due to its leading position in Sarawak's cement market, benefiting from a resurgence in local construction. CMS reported a 49.8% increase in 1H24 core profits to MYR74.2 million, despite a slight decline in revenue attributed to weather-related construction delays.

In terms of sector calls, the upgrade from Neutral to OVERWEIGHT is supported by strong performances from CMS, Malayan Cement (LMC), and Press Metal (PMAH). LMC's full-year core net profit of MYR510.7 million exceeded expectations, showing over 100% growth year-on-year, driven by an 18.3% increase in revenue from cement and ready-mixed concrete. Press Metal's 1H24 core earnings, while slightly below expectations, benefited from higher aluminium prices and spot premiums. The aluminium sector is expected to benefit from anticipated US Federal Reserve rate cuts, slow capacity expansion in Indonesia, and increased tariffs on Chinese imports, with a forecasted normalisation of prices from 2025.

The cement market shows promising stability, with prices holding steady at MYR380 per tonne. The sector remains buoyed by ongoing infrastructure projects, including the Pan Borneo Highway and the Kuala Lumpur-Singapore High-Speed Rail. Despite some risks such as potential declines in aluminium prices and higher raw material costs, the overall outlook for the basic materials sector is positive, with significant growth opportunities driven by continued construction and infrastructure developments.

Source: RHB
Title: Cementing Growth: U/G To OVERWEIGHT