KUALA LUMPUR (Nov 26): Cahya Mata Sarawak Bhd (CMS) rose as much as 13 sen or 9.09% to RM1.56 so far today after the group saw a quarter-on-quarter (q-o-q) earnings improvement.

At the noon break, the counter had pared some gains at RM1.56, still up 13 sen or 9.09%.

The stock, among the top gainers this morning, saw 12.41 million shares change hands.

RHB Investment Bank research analyst Lester Siew said in a note today he lifted his earnings forecasts for the group by 3% to 11% for the financial year ending Dec 31, 2020 (FY20) to FY22 after factoring in an uptick in earnings before interest and tax margins, as well as a 2% divestment of its interest in CMS Resources and PPES Works, whose contributions would have come in at the associate level from October.

“The group’s earnings for the third quarter ended Sept 30, 2020 (3QFY20) saw a sharp q-o-q rebound to RM46.7 million, surpassing 1HFY20’s RM34 million (for the first half ended June 30, 2020). This came in above both our and street expectations, with 9MFY20’s RM80.7 million core net profit (for the cumulative first nine months ended Sept 30, 2020) accounting for 76% and 82% of respective full-year estimates,” he said.

He attributed this to better-than-expected operating margins for its cement and construction material divisions, while its top line recovered sharply — across its core operations — in 3QFY20.

He also noted that the strong set of numbers was partially offset by lower associate contributions, which he believes were largely due to weaker numbers from its associate OM Materials.

“The group appeared to be back on a solid footing, driven by management’s shrewd catch-up plans, in line with broad resumption of Sarawak’s industrial activities.

“We expect CMS to build on its earnings momentum heading into 2021, underpinned by a sustained roll-out of infrastructure-related projects in the state,” he said.

Siew maintained his "buy" call for CMS, and revised up his target price (TP) to RM2.23 from RM2.17.

“Our latest TP implies 14 times FY21 price-to-earnings ratio. We continue to like the stock for its appealing valuations and solid mid-term prospects tied to Sarawak’s promising pipeline of infrastructure development works,” he said.

CMS announced yesterday that its net profit surged 180% to RM46.71 million for 3QFY20 from RM16.71 million for the immediate preceding quarter.

Quarterly revenue slightly more than doubled to RM428.42 million for 3QFY20, versus RM206.84 million for 2QFY20, as a result of resumption of full operations with all of its traditional core businesses seeing an improvement.

On a year-on-year basis, the group’s net profit, however, fell 36% against RM72.83 million for 3QFY19. Quarterly revenue also fell 8.3% from RM467.18 million a year ago.

For 9MFY20, its net profit dropped 48% to RM80.7 million, from RM154.93 million a year earlier, while revenue fell 29% to RM917.7 million, from RM1.28 billion, due to fewer operating days across its traditional core businesses during the movement control order (MCO) period earlier this year.