‘Additional stake in OM a positive development for CMS’

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KUCHING: Researchers at Maybank Investment Bank Bhd (Maybank IB Research) are positive on Cahya Mata Sarawak Bhd’s (CMS) wholly owned subsidiary Samalaju Industries Sdn Bhd acquiring an additional five per cent stake in OM Materials Sarawak Sdn Bhd for US$18.45 million.

The move will increase CMS’ stake in the ferrosillicon manganese alloys smelting plant in the Samalaju Industrial Park, Sarawak to 25 per cent from 20 per cent. The remaining 75 per cent is owned by OM Holdings Bhd.

Yesterday, the stock rose on Bursa Malaysia by eight sen to close atv RM4.55 with 1.05 million shares changing hands.

“We are positive on the deal as it would enhance recurring income from its investments in the Sarawak Corridor of Renewable Energy (SCORE),” Maybank IB Research highlighted. “In addition, the acquisition valuation implies a low four times FY16 price earnings ratio.

“We estimate three to 5.5 per cent potential upside to our FY15-17 EPS forecasts from the acquisition.”

Meanwhile, the research house believed OM Holdings would redeploy the proceeds from this disposal for the development of OMS phase II that further enhance earnings.

Despite the lackluster ferrosilicon price, OM Sarawak would still able to remain profitable due to its low cost structure as it leverages on the low energy cost in Sarawak, it said.

“Following this acquisition, CMS’ net cash still remains strong at RM786 million. Going forward, we expect further re-rating catalysts from more strategic investments and acquisitions,” it added.

From this move, Maybank IB Research reiterated its buy call for the stock at a target price of RM5 per share, factoring in the additional stake in OM Sarawak.

“Our earnings forecasts are largely unchanged with the additional contribution from OM Sarawak being small. We forecast RM69 million net profit contribution from OM Sarawak in FY16 and FY17 (based on the original 20 per cent stake).”