INVESTMENT HIGHLIGHTS

• CMSB raised stakes from 49.94% to 60% in MPAS

• The acquisition was financed via internally generated funds of CMSB, for a cash consideration of RM64.24m

• Positive on the news, as majority control will allow CMSB to consolidate earnings at group level

• Maintain BUY call on the stock with a TP of RM4.13

Samalaju Industries of Cahya Mata Sarawak, has subscribed to 64.2m new ordinary shares in Malaysian Phosphate Additives Sarawak (MPAS) in return for RM64.24m cash consideration. Accordingly, the deal will result in Samalaju Industries holding majority control in the company at 60%.

Background on MPAS. MPAS is a joint venture company between Samalaju Industries, a wholly owned subsidiary of CMSB, and Malaysian Phosphate Additives Sdn Bhd, an operator of a phosphate complex in Perak, Malaysia. It was formed to construct and operate an integrated phosphate complex in Samalaju Industrial Park, Sarawak. We understand that the plant’s construction work is currently on-going, with the first phase scheduled to complete by the end of 2020. Upon completion, the plant will be utilized to produce Yellow Phosphorous, Technical Grade Phosphoric Acid and Food Grade Phosphoric Acid, with an annual production capacity of 48,000 Metric Tons (MT), 75,000 MT and 60,000 MT respectively.

The increase of stakes to 60% will allow Samalaju Industries to recognize more earnings from MPAS’s operations. We recall that the increase was subsequent to its RM45.54 million investment for a 9.94% stake in MPAS in the third quarter CY18. We consider the move as strategic considering that it will enable CMSB Group to consolidate the contribution from MPAS into CMSB consolidated statements. This means that investors can expect higher contribution to CMSB’s revenue once the income from MPAS production line starts kicking in.

Financing. The shares subscription was financed by internally generated funds of CMSB. As of September 2018, we recall that CMSB’s cash reserves amounted to RM630.2m.

Source: MIDF Research - 15 Jan 2019