Cahya Mata Sarawak Bhd (CMS) 9M23 core net profit was just 56% of both Maybank Investment Bank’s (Maybank IB) forecasts and consensus for the financial year with the shortfall due to higher losses at the phosphate operations.
This, the research house said, more than off-set positive surprises at the cement operations, and the phosphate ops will remain an earnings drag so long as electricity supply is not restored.
Maybank IB cuts its FY23E-FY24E earnings forecasts but maintains its FY25E numbers and a tactical BUY call.
“We derive a lower TP of RM1.30, down by 17sen, based on unchanged 10x FY24E PER, -0.5SD of LT mean. CMS remains a liquid proxy to higher construction activities in Sarawak. 3Q23 CNP fell 62% QoQ, 9M -52% YoY,” it said in its note today (Nov 30).
Maybank IB said it cuts CMS’s earnings forecasts, as its earlier MYR58 million loss projection for the phosphate operations in FY23 assumed
the start of commercial operations in mid-2023.
“This is no longer realistic and we now assume the start of commercial ops in mid-2024. We now project a larger RM136 million loss at CMPI in FY23E, RM68 million loss in FY24E.
“This leads to us cutting our FY23E CNP forecast for CMS by 28% and FY24E by 12%,” it added.
The research house said cement earnings picked up considerably in 3Q23, QoQ, and its PBT rose 41% on higher revenue, up by 13% due to strong volume sales and margins (+3.6ppt to 17.5%; increased plant efficiencies).
“However, this was not sufficient to offset higher losses at the phosphate ops of RM44 million in 3Q23 compared to RM30 million in 2Q23 on higher finance cost, including FX loss for its borrowings.
“CMS’ 9M23 core net profit was also dragged by a larger RM99 million loss at the phosphate operations, compared to RM34 million in the same period last year as it starts to recognise commissioning and finance costs following the completion of construction of its integrated phosphate complex in Samalaju.
It added protracted phosphate PPA dispute will remain a drag as Sarawak Energy Bhd’s Sesco has filed a Notice of Arbitration with Asian International Arbitration Centre (AIAC) on 24 Nov, with the evidentiary hearing now fixed on Aug 26 to 30, next year.
“With electricity supply to the phosphate complex having been terminated since July 10, the question remains as to when electricity supply can resume, to enable commercial operations to start.
“We estimate at least a RM10 million loss at Cahya Mata Phosphates Industries (CMPI), which is CMS’ 80%-subsidiary for every month of delay in the start of CMPI’s commercial operations,” it added.
