We are unperturbed by CMS’ 1QFY13 net profit of MYR28.7m, which only made up 17.4% of our full-year estimate. We expect its clinker plant, now being commissioned, to lead the group’s earnings growth for the next 2 years while its other business units ride on the developments in SCORE. The stock’s undemanding valuation prompts us to lift our SOP based-FV to MYR6.60. Re-iterate BUY.  

Weaker start no surprise. Cahya Mata Sarawak (CMS) posted a 1QFY13 profit of MYR28.7m, down  8.4% y-o-y and 24.8% q-o-q, accounting for only 17.4% of our full-year forecast. The weaker start was anticipated as the group’s newly-upgraded clinker plant is still at the early stage of commissioning. This aside, earnings from its road maintenance and materials divisions also normalised after a sudden spurt in 4QFY12.

Clinker plant back in action. With the clinker plant now being commissioned and its utilization expected to average 80%-90% in 2QFY13, we see the clinker unit bouncing back to the black this year. The turnaround will be the group’s key earnings driver in the short term as the clinker unit’s prolonged shutdown in 2012 led to a pre-tax loss of MYR29m for the latter.

All set to SCORE. The Sarawak Corridor of Renewable Energy (SCORE) is well on track to propel the state’s economy to new heights. Consequently, this will boost the growth of CMS’ construction materials, road maintenance and property divisions. The group also has direct exposure to SCORE via 51%-owned Samalaju Property Development (SPD), which provides decent returns from its workers’ camps and a fast-track township development in Samalaju Industrial Park (SIP). Its 20% stake in OM Smelter SB (OM) also provides rich returns as the latter has enjoyed 20 years of cheap power.

Valuation still undemanding. CMS’ share price has been surging in recent weeks and has shot up by 71.5% since we initiated coverage on the group on 20 March. Even so, the stock’s valuation remains undemanding as the group’s current market cap accounts for only the full valuation of its cement division. This is despite the fact that its other divisions are contributing half of the group’s earnings. Thus we are raising our SOP-based FV to MYR6.60.

Source: RHB