Cahya Mata Sarawak Bhd
(Dec 5, RM4.19)
Maintain “buy” with target price of RM5. Cahya Mata Sarawak Bhd (CMS) is set for another record year after its first nine months of financial year 2014 (9MFY14) results represented 78.6%/79.2% of our/street estimates. Reiterate “buy” with our sum-of-parts-based RM5 target price (19.3% upside). Its immediate endeavours include the full commissioning of Phase I of the OM Material Sarawak (OMS) smelter by the first half of 2015 (1H15), construction of Phase II, MPA, a new cement grinding plant that is slated for completion by 2016/2017 and more property project launches.

CMS hosted a post third quarter FY14 (3QFY14) results briefing that was well attended by sell and buy side analysts as well as fund managers last Thursday.

Management is expecting a decent 4QFY14 and with 9MFY14 core profit of RM161.8 million, we do not discount the possibility of full-year results beating market expectations. That said, we prefer to be prudent by keeping to our original estimates.

CMS continues to benefit directly and indirectly from initiatives introduced under the Sarawak Corridor of Renewable Energy (Score). Chief financial officer Tuan Syed Hizam said Phase I of a power-intensive smelter by 20%-owned OMS is entering a commissioning stage with full operations expected in 2QFY15 while construction of Phase II may start as early as 1QFY15. CMS’ 40%-owned Malaysian Phosphate Additives SB project is also progressing but the commissioning stage’s target has been deferred by six months to 1QFY17. He also believes that the earnings drop at its workers’ lodge may recover, as it expects an improved occupancy rate partly mitigated by earnings from its property developments in Samalaju, Sarawak. We expect the latter to reach a larger scale and be completed earlier than originally expected. Separately, CMS’ new grinding plant is scheduled to kick off by 2HFY16.

CMS’ huge cash pile allows it to take on projects with attractive returns that may arise from Score or others. We understand that management is currently evaluating various investments and merger and acquisition potentials at this moment. — RHB Research Institute, Dec 5

This article first appeared in The Edge Financial Daily, on December 8, 2014.