CMS shares dip slightly despite decent 1Q14 results

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KUCHING: Cahya Mata Sarawak Bhd’s (CMS) shares dipped slightly on Bursa Malaysia yesterday despite registering a net profit of RM38.9 million for the first quarter of financial year 2014 (1Q14).

The share dropped 29 sen or 2.94 per cent at closing yesterday, with 592,000 shares traded.

Despite only representing 18.9 per cent and 19.1 per cent of RHB Research Institute Sdn Bhd (RHB Research) and street full-year estimates, the firm deemed this to be in line as 1Q was typically a slower quarter for CMS.

“Due to the Lunar New Year celebration, lower sales were recorded across the board on a q-o-q basis, as business activities slowed due to off-peak seasonality in 1Q14,” it said in its report yesterday.

The team at Alliance Research Sdn Bhd (Alliance Research) opined that results could have been better if not for unplanned maintenance at the clinker plant which dragged cement division earnings by three per cent year on year (y-o-y).

Earnings from the lodging division suffered a drop of 69 per cent y-o-y due to lower occupancy rate after a major project at Samalaju Industrial Park had been completed. However earnings should recover in subsequent quarters as management concludes negotiation with a new client who will start construction of their plant soon.

CMS still had a strong net cash position at RM612 million or RM1.80 per share at end-1Q14. It also holds RM137 million in investment securities which translates into RM0.40 per share.

All eyes were now on OM Sarawak Sdn Bhd (OMS), RHB Research said, as the Sarawak Corridor of Renewable Energy (SCORE) was well on track to propel the state’s economy, thereby directly and indirectly boosting the growth of all CMS’ businesses.

“Moving forward, we expect the efficiency of CMS’ newly upgraded clinker plant to improve further as it reaches optimum production volume. We also expect higher selling prices to be fully reflected in the second half of the year.

“That said, our key focus now is on its 20 per cent stake in OMS’ smelting project, which offers potentially rich returns, given its access to 20 years of cheap power. We also see upside for its 51 per cent-owned Samalaju Property Development Sdn Bhd, while positive progress has also been made in its 40 per cent-owned Malaysian Phosphate Additives (MPA) project.”

Researchers at Maybank Investment Bank Bhd (Maybank IB Research) noted that CMS’ management is looking to revise its dividend payout at end-2014 (not at a 30 per cent dividend payout ratio) after its ferro-silicon smelter joint venture starts to contribute.

“Leveraging on its huge cash pile, potential acquisitions and new investments would further re-rate the stock.”