KUCHING: Despite Cahya Mata Sarawak Bhd’s (CMS) second quarter of 2015 (2Q15) results having missed estimates, some analysts view that the group’s overall outlook remains decent.
In a filing on Bursa Malaysia, it was disclosed that the group’s profit before tax (PBT) for 2Q15 was at RM66.71 million, 32 per cent lower than 2Q14.
According to AllianceDBS Research Sdn Bhd (AllianceDBS Research), CMS’ net profit of RM41 million in 2Q15 took the first half of 2015 (1H15) earnings to only circa 38 per cent of the research house’s as well as consensus full-year estimates.
AllianceDBS Research noted that the key variances were largely due to lower revenue (particularly at construction materials division) as well as lower contribution from associates.
After a strong 1Q15, sales at the construction materials division fell by 38 per cent quarter on quarter (q-o-q) which the research house believed was largely due to goods and services tax (GST) implementation in April.
Meanwhile, CMS’ net profit of RM98.1 million in 1H15 was 6.6 per cent lower year on year (y-o-y) and short of RHB Research Institute Sdn Bhd’s (RHB Research)/consensus estimates.
RHB Research also noted that customers may have withheld purchases after front-loading their spending ahead of the implementation of the six per cent GST.
The research house further noted apart from that, the scheduled maintenance at CMS’ clinker plant and stronger US dollar (which is more expensive clinker imports) have led to a higher operating cost at the group’s cement
division.
“More importantly, there were also no land sales to date vis-à-vis circa RM24 million profit from land disposals in 1H14,” it added.
Moving forward, RHB Research expected higher earnings from CMS’ road maintenance and materials trading divisions ahead of the impending state election (by June 2016).
Nonetheless, the research house expected lower contributions from its property division on the general slowdown of the property market.
It also saw lower earnings for CMS’ cement unit and 25 per cent-owned OM Materials (Sarawak) Sdn Bhd (OMS) on the weaker US dollar to ringgit exchange rate and the selling price of ferro silicon.
That said, RHB Research continued to like CMS as the group is the best proxy to benefit from initiatives rolled out under the Sarawak Corridor of Renewable Energy (SCORE).
The research house still expected core profit to rise 26.7 per cent/16.4 per cent in financial year 2016/2017 (FY16/FY17) respectively after it slowed down to 6.3 per cent in FY15.
As for AllianceDBS Research, the research house expected softer contribution from OMS given lower ferrosilicon prices in the global market.
“Nonetheless, the plant should remain profitable given its cost advantages (cheaper electricity tariff) and ready off-take agreement for 60 per cent of the output,” the research house said.
On another note, AllianceDBS said that it is awaiting the completion of Sacofa Sdn Bhd (Sacofa) acquisition in 2H15.
“Sacofa is a tower infrastructure and telecommunication service provider based in Sarawak,” the research house said, noting that the company’s key assets in Sarawak are 640 telco towers, 1,800 kilometres (km) of on-land fibre optic trunk network and 950km submarine cable system link to Peninsular Malaysia.
The research house expected this acquisition to be completed by 2H15 and contribute to CMS’ earnings starting FY16F.
RHB Research cut its FY15-17F earnings per share (EPS) by 15-21 per cent to reflect slower sales, stronger US$ which impacted raw materials costs such as coal and imported clinker and lower contribution from OMS.
The research house maintained ‘hold’ on the stock while its sum of parts (SOP)-based target price was revised to RM5 per share, which implied 15.6-fold FY16 price-earnings (PE) (ex- net cash) and 2.1-fold FY16 price to book value (P/BV).
On the other hand, RHB Research noted that the lack of Sarawak-based listed companies at a time of an imminent state election may put CMS under the spotlight – thereby justifying the group’s premium valuations based on scarcity.
RHB Research reiterated its ‘buy’ call and kept its SOP-based target price of RM5.55 per share, implying 2.8-fold P/BV and 21-fold FY16F P/E.
For the time being, the research house believed the ironing out of CMS’ proposed acquisition of a 50 per cent stake in Sacofa with better terms involved may prompt a rerating in the stock’s target price.