KUCHING: Sarawak-based Cahya Mata Sarawak Bhd (CMS) is expected to report its fourth quarter 2018 (4Q18) results on the last week of February with analysts predicting the cementmaker to expect a good year to come in spite of lower predictions for 4Q.
This comes as RHB Research Institute Sdn Bhd (RHB Research) anticipated for 4Q18 net profit to fall by 20 per cent quarter on quarter (q-o-q) and year on year (y-o-y) to about RM55 million to RM65 million on weaker property and cement income – due to higher clinker costs as well as a weaker ringgit during the quarter.
“Nonetheless, FY18 will still be a record year for CMS, thanks to the improved performance of its associate – OM Materials Sarawak Sdn Bhd (OMS),” it said in a note. “Overall, we expect FY18 earnings to improve by 15 to 19 per cent y-o-y.
“Based on a OM Holdings’ announcement, its subsidiary OMS sold 60,222 tonnes of ferrosilicon and 64,474 tonnes of manganese alloy in 4Q18.
“Besides the increase in production, we expect OMS to record a stronger 4Q18 on higher manganese alloy prices – although this will be slightly offset by lower ferrosilicon prices.”
RHB Research saw that CMS is eyeing more energy-intensive industry projects as phase 2 of OMS is now being planned.
It has received an approval from Sarawak Energy for another 100MW of electricity supply. “For Phase 2, management plans to build another four sets of 30MVA manganese alloy furnaces — capacity yet to be disclosed — targeted to commence operations in 2021,” RHB Research added.
“Overall, project cost is expected to be circa US$150 million. CMS also increased its stake in the Malaysia Phosphate Additives Sarawak (MPA) project to 60 per cent. We understand that construction works are currently ongoing, with the first phase scheduled to be completed by the end of 2020.”
To note, total investment for Phase 1 is circa RM950 million, and will funded via a mixture of shareholder’s equity and borrowings.
Management expects demand for cement to surge in late 2019-2020 from the construction of the Baleh Dam and Pan Borneo Highway Sarawak projects, whereby current progress is at 35 per cent.
“We also see potential growth in cement demand from rural-focused projects to be initiated in Sarawak. The State Government has announced a record budget of RM9 billion to finance various programmes and projects under the 11th Malaysia Plan, including socio-economic and rural transformation initiatives.
“We trim FY18-20F net profit by five to six per cent as we pare down the earnings growth outlook of Cahya Mata Sarawak’s cement division. That said, CMS is still our top sector pick, as it is set to benefit from Pan Borneo Highway Sarawak projects and the state’s RM9 billion development budget.
“Fluctuating ferrosilicon and manganese prices as well as the delay or cancellation of the Pan Borneo Highway Sarawak project are key downside risks to our call.”