CMS’  2QFY13  profit jumped  39.3%  q-o-q  to  MYR40m.  The  uptrend  may extend  into  2H  to  make  up  for  the  shortfall  in  1H.  Its  newly-upgraded clinker  plant  is  set  to  propel  the  group’s near-term  earnings  while  its other  business  units  will  benefit  from  the  developments  in  SCORE. Timely  land  sales  may  also  boost  profit.  Reiterate  BUY,  with  our  SOP based-FV unchanged at MYR7.55.  
 
- Earnings  gain  momentum.  Cahya  Mata  Sarawak  (CMS)’s 2QFY13 profit surged 39.3% q-o-q to MYR40m. Although this was 15% lower y-o-y,  we  note  that  the  preceding  year’s  earnings  were  lifted  by  profits derived  from  land  sales,  which  are  erratic  in  nature.  Excluding  these, earnings  would  have  been  about  25%  higher  y-o-y.  Meanwhile,  1H earnings appeared to have fallen short, accounting for just 41.7%/43.8% of  our/street  full-year  estimates,  but  this  was  anticipated  as the group’s newly-upgraded clinker plant only resumed operation in late March.

- Clinker plant back in action. With the clinker plant back in operation at an  average  utilisation  rate  of  >80%  in  2QFY13,  CMS’  clinker  unit bounced back into the black during the period. The turnaround will be the group’s key earnings driver in the short term  as the unit’s prolonged shutdown in 2012 had led to a segmental pre-tax loss of MYR29m.

- More to SCORE ahead? Apart from the revival of its clinker unit, CMS is selling two plots of land to Sentoria Group (SNT MK, NR). We expect the sale of at least one plot to be concluded in FY13 as it would have fulfilled all  the  stipulated  terms  by  year-end.  The  land  sale  will  bring  in  about MYR47m versus our MYR20m annual projection for the next two years. Moving forward, the Sarawak Corridor of Renewable Energy (SCORE) is well on track to propel the state’s economy, thereby directly or indirectly boosting the growth of all the conglomerate’s business units.  

- Reiterate  BUY.  The  stock’s valuation remains undemanding,  especially after  the  recent  market-wide  selldown.  CMS’  current  market  cap  is  less than the valuation of its cement division based on its peers’ average P/E. Note that it’s other divisions account for half of the group’s earnings. Our SOP-based  FV  of  MYR7.55  reflects  1.2x  P/BV  and  a  10.3x  P/E  on FY14F estimates, after stripping off net cash. Maintain BUY.

Source: RHB