Cahya Mata continues to ride on Score

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Cahya Mata Sarawak Bhd
Oct 24, (RM4.15)
Maintain buy and sum-of-parts-based target price of RM5:
Last week, Cahya Mata Sarawak (CMS) participated in Invest Malaysia Hong Kong 2014 (IMHK 2014), which was jointly organised by Bursa Malaysia and RHB Investment Bank Bhd. The group’s meeting slots were well attended by both new and existing investors.

The key topic of discussion with the management of this Sarawak-based conglomerate was its growth prospects moving forward. This was especially after CMS’ turnaround in late 2010. Investors were generally convinced by its outlook, driven by the initiatives rolled out in the Sarawak Corridor of Renewable Energy (Score) economic region.

Meanwhile, the first two furnaces of CMS’ 20%-owned OM Materials (Sarawak) (OMS) smelter were just commissioned. We expect Phase 1 of the OMS project to reach full commissioning by the end of the second quarter of 2015. Hence, it will be the main earnings driver for financial year 2015 (FY15) while other divisions ought to indirectly benefit from the developments at Score.

Phase 2 of OMS is currently on the drawing board, with construction possibly beginning in the second half of 2015 (2H15). Thus, its contribution can be expected from FY16 onwards. CMS’ Malaysian Phosphate Additives Sdn Bhd project is also progressing well while 51%-owned Samalaju Property Development Sdn Bhd may offer some upside. CMS is also in the process of installing a brownfield one million tonne per annum (transaction payment acquisition) grinding plant next to its clinker facility to meet growing demand from 2H16 onwards.

Investors’ expectations for CMS’ huge cash pile are high. Most believe this allows the group to take on projects with attractive returns that may arise from Score or other opportunities. These would eventually lift CMS’ future earnings potential. With that, we maintain our “buy” rating on CMS and target price of RM5, which is derived from a sum-of-parts valuation methodology. — RHB Research Institute

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This article first appeared in The Edge Financial Daily, on October 27, 2014.