KUALA LUMPUR (Dec 8): Analysts remain upbeat on Cahya Mata Sarawak Bhd's prospects, as it enjoys resilient demand for its cement, thanks to a stronger flow of infrastructure jobs in Sarawak, following an earlier announcement by the federal government under Budget 2024 which allocated RM5.8 billion for development in the region, and RM7.4 billion for the second phase of the Sarawak-Sabah Link Road.

MIDF Research kept its "buy" call and target price (TP) of RM1.32, pegged at its revised earnings per share forecast of 14.7 sen per share for the financial year ending Dec 31, 2024 (FY2024) to a price-earnings ratio (PER) of nine times, based on the two-year historical mean.

Maybank Investment Bank also maintained its "buy" rating on the stock and its TP of RM1.30, derived from 10 times FY2024 PER, which is 0.55 standard deviation below the mean of 14 times.

Established in 2008, Emas Dinamik Sdn Bhd - a leading company in the oil and gas sector specialising in marine transportation, civil construction, mechanical engineering, and manpower supply - has grown by leaps and bounds to become a trusted name in the industry.

In a research note on Friday, MIDF Research noted that Cahya Mata Sarawak's cement business reported a slight 1% increase in margins to 23% for the nine months ended Sept 30, 2023 (9MFY2023), thanks to higher sales volumes and lower input costs.

The group also recently entered into a technical consultancy agreement with Sinoma Industry Engineering (M) Sdn Bhd, a subsidiary of China-based Tianjin Cement Industry Design and Research Institute, for the construction of its new cement clinker line.

According to the research house, construction of the clinker plant, worth around RM750 million, in Mambong is expected to kick off in the third quarter ending Sept 30, 2024 (3QFY2024), and take three years to complete.

"The new line is expected to generate a daily production of 6,000 metric tons (MT) or 1.9 million MT of clinker per annum. 

"We estimate that this will enable Cahya Mata Sarawak to triple its yearly clinker production capacity from 900,000 MT currently to a total of 2.8 million MT. 

"With this, the management is optimistic that it will no longer have to rely on imported clinker, which ultimately translates into lower operating costs and better long-term margins, as Cahya Mata Sarawak would be in control of a steady supply of clinker and logistics costs. Clinker is the main raw material for the manufacturing of cement," it said.

MIDF Research said the group also shrugged off Sarawak's recent memorandum of understanding signed with Thailand's SCG International and YTL Cement Bhd to beef up the region's cement supply chain.

Cahya Mata Sarawak said this is because the group had always been open to competition, and the barriers to entry into the region's cement market had been lowered since 2018.

"They added that the focus of the group is efficiency and innovation, which has seen Cahya Mata Sarawak pushing on its green cement and ESG (environmental, social and governance) initiatives, as it strives to continue to be the preferred cement producer in Sarawak."

Meanwhile, Maybank noted that its oiltools business, which was acquired in September 2022, became the group's second-largest contributor to revenue and profit before tax in 9MFY2023.

"We estimate its order book to be over US$100 million (RM466.70 million), providing two to three years of earnings visibility. The division is actively bidding for new contracts across the eight countries that it operates in, including Malaysia, the Middle East, India and Nigeria," it said.

TA Securities was not as upbeat. The research house cut its TP to RM1.11 from RM1.14, based on sum-of-parts valuation, while maintaining its "hold" call, in tandem with its reduced earnings forecasts by 14.5% for FY2023, 6.67% for FY2024, and 7.6% for FY2025 to account for higher loss chalked by the phosphate division.

Power to the phosphate production plant in the Samalaju Industrial Park was cut after CMS was unable to obtain an injunction to stop Syarikat Sesco Bhd, amid the parties' ongoing arbitration case over a power purchase agreement signed in 2019.

“The legal dispute with Sesco over the power purchase agreement remains ongoing. According to the latest filing, the evidentiary hearing has been fixed for Aug 26 to 30, 2024. We believe that the phosphate plant's commercial operation is unlikely to occur in the near term,” TA Securities said.

At the time of writing on Friday, Cahya Mata Sarawak shares were unchanged from their last closing price of RM1.03, valuing the sole cement producer at RM1.12 billion. 

https://www.theedgemarkets.com/node/693202