Cahya Mata Sarawak’s (CMS) results positively surprised on strong cement earnings.
Maybank Investment Bank (Maybank IB) said today (Feb 27) that CMS’ FY23 core net profit (CNP) was 14% above estimates, and 5% above consensus.
Maybank IB made just marginal tweaks to their FY24-25 CNP forecasts, as they remain cautious on the phosphate ops which will remain an earnings drag so long as electricity supply is not restored.
Maybank IB derived a marginally lower TP of MYR1.28 (-2sen) based on unchanged 10x FY24E PER, -0.5SD of LT mean.
CMS remains a liquid proxy to higher construction activities in Sarawak
4Q23 CNP jumped 2.6x QoQ, 12M +8% YoY 4Q23 CNP was MYR36m vs. MYR10m in 3Q23 with the jump contributed by the cement op (PBT rose 79% QoQ due to 6% higher revenue and 12.1ppts higher margin).
This more than offset larger losses at the phosphate op (continuing commissioning costs), a loss at the property op, and lower contribution from Oiltools.
FY23 CNP rose 8% YoY to MYR115m as cement PBT rose 82% YoY on higher sales volume and higher margins (lower input costs). This offset higher losses at the phosphate op and losses at the property op due to slower sales of properties and absence of land sale.
A first and final 2sen
DPS represents 19% DPR (FY22: 3sen, 11% DPR). Phosphate PPA dispute will remain a drag CMS is cautiously optimistic of its prospects in FY24, with key challenges being the MYRUSD FX rate, and outcome of the ongoing arbitration for its phosphate op.
The latest development is that SESCO has filed a counterclaim of MYR342m which CMS has acknowledged as a contingent liability in its financial statements (up from MYR266m in FY22). Evidentiary hearing for the arbitration tribunal has been fixed on 26-30 Aug 2024.
Tweaking earnings forecasts
Maybank IB trimmed their FY24-25E CNP forecasts by 1% post results house-keeping and pending an update with management. Including investment securities, CMS remained in a net cash of MYR559m or 52sen/shr as at end-FY23.
Meanwhile, CMS said in its filing with Bursa Malaysia Securities Bhd that the group’s performance for the year ended Dec 31, 2023 was largely in line with its expectations with the exception of the phosphates division where commercialisation of the plant was deferred.
“The key challenges and headwinds for 2024 are US dollar/ringgit exchange rate which are at historical highs and the outcome of the ongoing arbitration for Cahya Mata Phosphates. Aside from these challenges and barring any other unforeseen circumstances, the group is cautiously optimistic of the prospects for 2024,” CMS said
It said it will continue to remain resilient and focus on realising its full growth potential, leveraging on its healthy balance sheet and diverse portfolio of businesses.
“As we progressively improve our strategy, aligning our business to growth and value opportunities, we will continue to pursue cost optimisation activities within the group to drive operational efficiency and optimise profit margin,” CMS said.
CMS’s cement division reported 13 per cent higher revenue of RM681.69 million and 82 per cent higher profit before tax (PBT) of RM146.04 million in FY23, due to the increase in sales of cement and improvement in gross profit margin due to lower input costs.
However the group was impacted by losses at the phosphate anfd property development divisions.
Loss before tax of RM156.70 million was recorded for FY2023, higher than FY2022’s net loss of RM61.31 million. FY2022 was in the construction phase with most of cost incurred in FY2022 being capitalised. For FY2023, the commissioning and finance related costs incurred were recognised in the statement of comprehensive income.
The property development division reported a loss before tax of RM2.22 million in 2023 compared with a PBT of RM33.17 million in 2022 mainly due to slower sales of properties and no land sales in 2023.
CMS’ stock was up 3.59 per cent to RM1.01 as at 9.35am, giving it a market capitalisation of RM1.08 billion.
