We  witnessed  the  smooth  operation  of  CMS’  clinker  plant  during  our trip  to  Sarawak  last  week.  This  reinforced  our  view  that  the  unit  will return  to  the  black  in  FY13.  We  were  also  impressed  with  the  pace  of development  of  its  51%-owned  Samalaju  Property  Development  (SPD) and  the  scale  of  its  20%-owned  smelting  project,  both  of  which  are located in Samalaju. Reiterate BUY, with our FV unchanged at MYR6.60.

- Best  proxy  to  SCORE.  Last  week,  Cahya  Mata  Sarawak  (CMS) presented  at  our  three-day  event  to  promote  the  Sarawak  Corridor  of Renewable  Energy  (SCORE).  A  professionally-run  conglomerate  with most  of  its  businesses  based  in  Sarawak,  CMS  is  set  to  benefit  from SCORE’s  initiatives,  which  should  bolster  its  cement,  construction materials, and construction and road maintenance divisions.  

- Clinker  plant  back  in  action.  Our  visit  to  CMS’  clinker  plant  in Mambong,  Kuching  erased  any  earlier  anxiety  as  we  were  told  that  the upgraded plant has been operating smoothly since March. The company is well on track to return to the black after incurring a loss of MYR29m in FY12 due to the plant’s prolonged shutdown. We expect its efficiency to improve  and  production  to  grow  from  FY14.  Moreover,  the Group’s strength  in  logistics  continues to reinforce its monopoly of Sarawak’s cement market.   

- Positive on Samalaju. Our recent trip to Samalaju was a fruitful one and we were excited to uncover further upside from its 51%-owned Samalaju Property  Development  SB  (SPD).  The  occupancy  rate  of  its  workers’ lodge  is  expected  to  peak  soon  while  the  development  of  its  hotel, amenities and residential and commercial properties may be larger than our earlier projections. We also learnt that the commissioning of Phase 1 of  a  smelting  project  by  20%-owned  OM  Holdings  (OMH  AU,  NR)  may take place in 2Q14, earlier than our estimate of mid-2015.

- Reiterate BUY. With our visit to CMS’ operations reaffirming our bullish view  on  the  Group,  we  maintain  our  BUY  rating  on  this  stock  with  an SOP-based  FV  of  MYR6.60,  implying  1.3x  P/B  and  a  11.3x  P/E  on FY14F  estimates.  Meanwhile,  we  keep  our  earnings  forecasts unchanged, pending further updates from management.

Source: RHB