KUCHING: AllianceDBS Research Sdn Bhd (AllianceDBS Research) has upgraded its recommendation on Cahya Mata Sarawak Bhd (CMS) to ‘buy’ and noted that its current price offers an attractive entry point for investors.
Of note, at closing, CMS’ trading price is at RM4.12, an increase of 7.85 per cent from its opening price at RM3.82.
AllianceDBS Research further highlighted the company’s fundamentals are improving, with little downside risk seen and as at September 2014, CMS’ balance sheet remains strong with RM582 million net cash (or RM0.56 per share).
On its performance, the research arm noted CMS’ margins and profitability for the cement division have improved in 2014 following the five to nine per cent price hike early February this year.
The construction materials and road maintenance divisions have been posting record profits amid robust construction activities and infrastructure development in Sarawak, AllianceDBS Research pointed out.
“This will persist in 2015 as the Sarawak state government may increase infrastructure spending ahead of the state election in 2016,” it said.
Moreover, it noted, CMS’ margins in the construction materials’ segment is expected to improve due to lower input costs (which are bitumen and diesel), in tandem with the fall in crude oil prices.
As for CMS’ road maintenance division, AllianceDBS Research said, the contribution from this division has been rising steadily as CMS carried out more road upgrading works over the years.
The Pan Borneo Highway might also be a catalyst for CMS, the research arm said.
The Pan Borneo Highway, estimated to cost RM27 billion to complete, will span 936km across Sarawak and 727km across Sabah.
The contract is likely to be awarded to several players (including CMS) given the huge project size, but the timing of the award is uncertain, it added.
The management also targets to secure the renewal road maintenance concession contracts by 2015 or latest in 2016.
For its property business, AllianceDBS Research explained, CMS’ division property owns 4,510 acres of landbank in Sarawak, including two large landbanks 4,211-acre landbank that is being developed into a riverine township called Bandar Samariang; and199-acre landbank which is being developed into Kuching’s new central business district, The Isthmus.
“Under its strategy to fast-track development in Bandar Samariang, CMS sold several pieces of land in 2012 and 2013 to other property developers such as Hock Seng Lee and Sentoria Group.
“The company booked huge disposal gains as those lands were purchased long ago at much lower prices. Going forward, CMS plans to have minimal or even halt land sales, preferring to develop the landbank on their own,” it added.
Meanwhile, on its projects in the fast developing Samalaju area, AllianceDBS Research noted that four of the CMS’ 16 ferrosilicon furnaces were commissioned in the fourth quarter of 2014 (4Q14), and the rest will be fired up gradually to reach full operation by 2Q15.
“At 70 per cent utilisation rate, we estimate OM Materials (Sarawak) Sdn Bhd (OM Sarawak) will contribute about 11 per cent of CMS’ bottomline in FY15,” it said.
As for the joint development of Malaysian Phosphate Additives Sdn Bhd (MPA), AllianceDBS Research said, the plant may be operational by the second half of 2016 (2H16) and is estimated to contribute RM100 million to CMS’ bottomline at full capacity.
All in, the research arm raised its FY15-16 forecast earnings per share for CMS by four to seven per cent.
“We imputed lower coal cost for the cement division, albeit the impact was partly offset by the weaker ringgit.
“Our revised forecasts indicate strong three-year earnings compounded annual growth rate (CAGR) of 16 per annum for CMS over FY14-16F,” it projected.