MS  is  set  for  another  record  year  after  its  9M14  results  represented 78.6%/79.2% of our/street estimates. Reiterate BUY with our SOP-based MYR5.00  TP  (19.3%  upside).  Its  immediate  endeavours  include  full commissioning  of  Phase  I  the  OMS  smelter  by  1H15,  construction  of Phase II, MPA, a new cement grinding plant that is slated for completion by 2016-2017 and more property project launches.  
 
Post results briefing. Cahya Mata Sarawak (CMS) hosted a post 3Q14 result briefing that was well attended by both sell and buy side analysts as well as fund managers yesterday.  

Another  record  year  in  the  bag.  Management  is  expecting  a  decent 4Q14  and,  with  9M14  core  profit  of  MYR161.8m  representing  78.6%/ 79.2%  of  our/street  estimates  respectively,  we  do  not  discount  the possibility of full-year results beating market expectations. That said, we prefer to be prudent by keeping to our original estimates.

Get  set  for  busy  years  ahead.  CMS  continues  to  benefit  directly  and indirectly  from  initiatives  introduced  under  the  Sarawak  Corridor  of Renewable Energy (SCORE). CFO Tuan Syed Hizam said Phase I of a power-intensive smelter by 20%-owned OM Materials (Sarawak) (OMS) is  entering  stage  commissioning  with  full  operations  expected  in  2Q15 while  construction of  Phase  II may  start  as  early as  1Q15.  CMS’  40%-owned  Malaysian  Phosphate  Additives  SB  (MPA)  project  is  also progressing  but  target  stage  commissioning  has  been  deferred  by  six months to 1Q17. He also believes that the earnings drop at its workers’ lodge  may  recover,  as  it  expects  an  improved  occupancy  rate  partly mitigated  by  earnings  from  its  property  developments  in  Samalaju, Sarawak. We expect the latter to reach a larger scale and be completed earlier than  originally  expected.  Separately,  CMS’  new  grinding plant  is scheduled to kick-off by 2H16.

BUY with a SOP-based MYR5.00 TP. CMS’ huge cash pile allows it to take  on  projects  with  attractive  returns  that  may  arise  from  SCORE  or others. We understand  that management is currently evaluating various investments and M&A potentials at this moment. Therefore, we keep our BUY rating on  the stock with an unchanged MYR5.00 TP, derived from SOP valuation methodology.

Financial Exhibits

The upward revision in cement prices should drive 2H14 earnings. OMS, in which CMS has a 20% stake, will likely be a key earnings contributor from FY15

Its strong cash-generating capacity provides room to reward shareholders via a 30% payout commitment

Financial Exhibit

CMS’ solid balance sheet enables it to take on any attractive investment opportunities, particularly in SCORE

We project decent earnings growth over the short to medium term, which should continue to bolster the group’s key financial ratios

SWOT Analysis

CMS’ rationalisation of the past few years has put it on the right footing to capitalise on the opportunities arising from the Sarawak Corridor of Renewable Energy (SCORE)

Company Profile

Cahya  Mata  Sarawak  (CMS),  a  conglomerate  with  most  of  its  operations  based  in  Sarawak,  has  its  main  business  in  cement manufacturing. The group is also involved in building materials, construction, road maintenance and property development. 

Recommendation Chart

Source: RHB