Companies: CMS ************** Cahya Mata Sarawak Bhd (CMS) is set to report another strong set of numbers in the third quarter of 2013 (3Q13), with the recognition of profit from a 4Q land sale possibly making up for the shortfall in the first nine months of 2013. In addition, the group’s newly-upgraded clinker plant is expected to propel its financial year 2013 (FY13) and FY14 earnings while other businesses will benefit from developments in Sarawak Corridor of Renewable Energy (SCORE). Analyst Ng Sem Guan from RHB Research Institute Sdn Bhd (RHB Research) highlighted in a recent note, “Earnings are likely to be mostly lifted by its clinker plant, which resumed operations in late March. “Meanwhile, we project a sharp year-on-year (y-o-y) surge in 3Q13 profit since clinker production was mired in losses in the corresponding quarter last year when the plant was being upgraded. “That said, its 3Q13 quarter-on-quarter (q-o-q) earnings may be flat, with 9M13 net profit accounting for only circa 66 per cent of our and street estimates. “However, we are unperturbed by this potential shortfall as it will likely be made up by recognising profits from the sale of one of two land plots to Sentoria Group Bhd (Sentoria) in 4Q. The newly-upgraded clinker plant is also expected to drive CMS’ 2014 earnings as the plant is likely to reach optimum efficiency, cost savings and production volume next year. Aside from that, CMS’ land sale to Sentoria is also likely to be recognised in 1Q14, hence contributing to the group’s growth in 2014. That said, the SCORE is well on track to propel the state’s economy, thereby directly/indirectly boosting the growth of all of its business units. “Our focus is on CMS’ 20 per cent stake in OM Materials (Sarawak) Sdn Bhd’s (OM Materials) smelting project, which offers potentially rich returns, given its access to 20 years of cheap power. “We also see upside for 51 per cent-owned Samalaju Property Development Sdn Bhd and positive progress in its Malaysian Phosphate Additives (MPA) project,” Ng said. With another set of record earnings almost in the bag, the analyst outlined that the research firm has maintained a ‘buy’ call on CMS with a fair value of RM7.55 per share, based on sum of parts which reflects 1.2-fold price book value and 10.3-fold price earnings (PE) on FY14 estimates. Ng also noted that there is still plenty of upside valuation for the group. The analyst added, CMS’ current market cap only reflected the full value of its cement division based on the PEs of its regional peers. “Note, too, that its other divisions are contributing to half of group earnings, and that the enormous growth potential arising from developments in SCORE will also benefit other divisions like building materials and property – either directly or indirectly via spillover effects,” Ng added. The analyst further enthused that the vast growth potential in Sarawak will bode well for the group, as its businesses are mainly based there. All in, RHB Research retained discounted cash flow valuation for CMS’ road maintenance division and workers lodge.
Posted on: Tue, 26 Nov 2013 02:44:08 +0000
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