"Nevertheless, CMS remains our top sector pick as we believe the group is set to benefit from Pan Borneo Highway Sarawak projects as well as Sarawak’s state development budget," it said in a note.
In the quarter, CMS's net profit, minus earnings from a land sale and reversal of provisions, was RM25.6mil, representing 9% of RHB's and consensus expectations.
According to RHB, the earnings drop was due mainly to lower contributions from OM Sararak (OMS) arising from lower sales and selling prices.
"We believe the lower sales was mainly due to softer demand from the ongoing US-China trade war, which also led to lower ferrosilicon and manganese alloy prices," it said.
However, the research house believes CMS's long-term prospects remain intact as it is the sole supplier of cement in Sarawak.
"Cement demand is expected to rise on the back of Pan-Borneo Highway Sarawak projects, where the current progress is only at c.35%.
"In addition, the commencement of the Sarawak Highway and Second Trunk Road projects, as well as the new Baleh Dam project during 2020-2021 would augur well for CMS," said RHB.
The research house added that the first phase of Malaysian Phosphate Additives Sarawak’s (MPA) plant is scheduled to be completed by the end of 2020 while phase 2 of OMS is in the planning stage, with 30MVA manganese alloy furnaces targeted to commence operations in 2021.