MIDF Research came away from Cahya Mata Sarawak Berhad (CMSB)’s post results briefing yesterday feeling positive on the group’s future performance as management focusses on
improving its cost efficiency. To recap, the group’s core earnings for 9MFY22 were +27.5%yoy higher at RM185m which exceeded ours and consensus expectations, making up 90.1% and 108.8% of full-year estimates respectively.
Focused on cost efficiency. Being the sole cement manufacturer in the state, CMSB stands to benefit from the potential rise in jobs flows. It raised its cement prices earlier this year by about 10% for the first time in six years. Management is not planning to raise prices any further for now despite coal prices still being rather elevated and will instead focus on improving its plant efficiency and on its procurement and logistic arrangements.
Improving construction margins. Construction revenue rose slightly by +0.2%yoy in 9MFY22 to RM291m while its PBT grew about +25%yoy to RM5m, mainly due to higher gross margin recognised from an offshore gas plant project.
CMSB’s outstanding construction orderbook stands at RM600 million, made up of projects such as the Bintulu Jepak bridge and the Pan Borneo Highway.
Management is aiming to bid for projects related to the Autonomous Rapid Transit, Petchem Earthworks, the proposed upgrading of Jalan Sultan Tengah in Kuching and the Emart Underpass. CMSB also expects to bid for other projects such as the construction of coastal and rural roads, bridges, expansion of water and electricity grids to rural areas and maintenance works in major sections of state roads.
There is a replenishment target of RM1b over the next two years.
Fully fired up by year-end. CMSB’s 60% owned Malaysian Phosphate Additives Sarawak (MPAS) fired its third furnace on Wednesday and the final fourth furnace will be fired up before the end of 2022.
The commercial production is expected to start early next year. Management reiterates its guidance that MPAS is able to turn cash flow neutral by FY23 and is projected to generate profit by FY24. The research house’s back on the envelope calculations points towards a net earnings contribution of about RM50m to CMSB annually come FY25, assuming that MPAS manages to fulfill its entire export capacity of 48,000 and if the price of yellow phosphorus stabilises at USD4,000 per tonne.
MIDF maintains its TP at RM1.47, derived by pegging a PER of 7.8x to the Group’s FY23 EPS of 18.8sen. MIDF is positive on CMSB’s prospects moving into FY23, in line with projects that may be rolled out in the state as the newly formed federal government commits to develop East Malaysia, on top of a capital injection of RM100 billion by 2030, both of which would translate into a steady flow of jobs, that would benefit CMSB in terms of job replenishments and supply of building materials.
It is also positive on its upcoming phosphate business in the longer-term, which is set to take on Kazakhstan and Vietnam, the two powerhouses that have dominated the yellow phosphorus industry for year and no new entrants into the industry are expected at least for several years to come. All in, MIDF maintain its BUY recommendation on CMSB.
