Cahya Mata Sarawak Bhd (CMS) plans to take proactive measures to improve on efficiencies and it will continue to explore opportunities to create, optimise and unlock value for shareholders.
According to Maybank Investment Bank Bhd (Maybank IB), Sarawak’s economic prospects remain strong in the medium to longer term, and CMS remains a liquid proxy to higher construction activities in the state.
The research house maintains its (tactical) BUY call, earnings forecasts, and TP (on 10x FY24E PER, -0.5SD of mean) and BUY call for CMS post briefing.
Maybank IB said the group’s 3Q and 9M23 cement revenue growth of 6% and 13% year-on-year (YoY) respectively, due to higher sales volume, reflects robust demand for cement in Sarawak.
“The Cement’s sgement’s 3Q and 9M PBT growth of 17% and 8% respectively was also due to lower average input cost. CMS had, on Nov 20, inked two technical consultancy agreements with Sinoma Industry of China for the study of a new clinker line and assessment of its existing ones.
“Over time, CMS aims to zerorise its reliance on imported clinker, reduce operational cost (via increased efficiencies) and improve on its ement profit margins,” it said in its research note today (Dec 8).
It also noted that the acquisition of Oiltools (completed on 6 Sep 2022) has been positive.
Oiltools was the second largest contributor to group revenue and PBT in 9M23 (after Cement segment) at 24% and 26% respectively. The latter supported by improved GP margins too.
“We estimate its orderbook to be more than USD100 million, thus providing 2-3 years of earnings visibility. The division is actively bidding for new contracts across the 8 countries that it operates in, including Malaysia, Middle East, India and Nigeria,” the research house said.
However, the group said Phosphate operations takes the full hit in 3Q23, with RM44 million loss in 3Q, up 46% quarter-on-quarter (QoQ) is a full reflection of the quarterly operational and finance costs.
“(This is) pending the resumption of electricity supply (to enable it to start commercial operations) after it was cut on July 10 due to a dispute relating to a PPA term.
“The dispute is now awaiting arbitration, with the evidentiary hearing fixed between Aug 26 and Aug 30 next year. We have reflected these costs in our earnings forecast revision for CMS on 30 Nov, after the release of its 3Q/9M23 results,” the research house added.
