We  are  taking  a  relook  at  CMS  after  a  visit  last  month  to  its  Sarawak home  base  convinced  us  that  its  clinker  division  will  turn  around  in FY13 after its plant restarts. The scale of development carried out by its 51%-owned  SPD and  the pace  of  its  20%-owned  smelting  project,  both in  Samalaju,  are  impressive  indeed.  All  said,  we  reaffirm  our  BUY  call, with our SOP-based FV revised higher to MYR7.55.

- Best  proxy  to  SCORE.  As  the  operations  of  Cahya  Mata  Sarawak (CMS) - a conglomerate managed by professionals - are mostly based in Sarawak,  the group’s cement, construction  materials,  and  construction and road maintenance divisions are poised to benefit from the initiatives rolled out by the Sarawak Corridor of Renewable Energy (SCORE).   

- Cement division an immediate catalyst. Our visit to CMS’ clinker plant in  Mambong,  Kuching  helped  to  soothe  concerns  as  operations  at  the upgraded facility has been progressing smoothly since March. The unit is well  on  track  to  return  to  the  black  after  it  incurred  a  MYR29m  loss  in FY12 due to the plant’s prolonged shutdown. We expect  efficiency  to mprove  and  production  to  grow  from  FY14  onwards.  Meanwhile,  the Group’s logistics prowess allows it to maintain its tight grip on Sarawak’s cement market.   

- Ample  potential  in  Samalaju.   During our visit to the group’s 51%-owned  Samalaju  Property  Development  SB  (SPD),  we  discovered  that there is still more upside for this unit. The occupancy rate of its workers’ lodge  is  expected  to  peak  soon  while  the  scale  of  works  at  its  hotel, amenities and residential and commercial properties may be larger than projected  earlier.  We  also  learnt  that  Phase  1  of  a  smelting  project  by 20%-owned  OM  Materials  (Sarawak)  (OMS)  may  be  commissioned  in 2Q14, earlier than our estimate of mid-2015.

- Reiterate  BUY.  We  are  keeping  our  earnings  forecasts  unchanged, pending further progress updates from Management. As our last visit to its  operations  have  increased  our  optimism  on  the  Group,  we  lift  our SOP-based  FV  to  MYR7.55  (from  MYR6.60),  implying 1.2x  P/BV  and  a 10.3x P/E on FY14F estimates after stripping off net cash. Maintain BUY. 

Source: RHB