After incorporating a 4.6% hike in cement selling prices
effective 1 Jan 2016 plus few other revisions, we lift CMS’ FY15-17F
earnings by 0.6-1.9% and raise our TP to MYR5.86 (from MYR5.55, 15%
upside). The impending Sarawak state election should keep the
company in the limelight. CMS is also set to benefit from the Sarawak
Corridor of Renewable Energy (SCORE)-related initiatives. BUY maintain.
Cement prices up 4.6%. Cahya Mata Sarawak Cement SB,
a whollyowned subsidiary of Cahya Mata Sarawak (CMS), has increased
prices of its cement products by 4.6% from 1 Jan 2016. As we had
factored in higher costs from the weaker MYR, this price increase should
directly filter down to its after-tax earnings.Other near-term catalysts. CMS’ earnings from its road maintenance and materials and trading divisions have risen ahead of the impending Sarawak state election (slated for Jul 2016). We believe both divisions may eventually benefit from the MYR26bn Pan Borneo Highway project. Meanwhile, we also believe that the commissioning of its new grinding plant in Mambong, Sarawak should help to improve profitability of its cement unit in 2016. Additionally, its acquisition of a 50% stake in Sacofa SB in Oct 2015 would also see full-year earnings contribution from FY16onwards. Our FY16/FY17 profit estimates are MYR35m/MYR36m respectively. Separately, we expect additional contribution from its property division upon completion of certain developments coupled withpossible gains from land sales.
Key risk. Ferro silicon prices have plummeted in tandem with the broad weakness across the commodity complex, hence dampening earnings ofits 25%-owned OM Materials (Sarawak) SB (OMS). While we expect the unit to remain in the black due to competitive energy costs, we have accordingly slashed OMS’ FY15-18 earnings projections.
Reiterate BUY, with TP lifted to MYR5.86. We value CMS based on aSOP computation. Earnings revisions from some business units have translated to a higher TP of MYR5.86, implying 3.0x P/BV and 22.0x FY16F P/E. The dearth of Sarawak-based listed companies at a time of an imminent state election may put CMS under the spotlight, thereby justifying its premium valuations.
Earnings And SOP-Based TP Revisions Earnings revisions.
The latest move by CMS to raise its cement prices by 4.6% effective 1
Jan 2016 has prompted us to take this opportunity to review our earnings
projections. Our revisions are as follows: i. We raise FY16/FY17 net
profit estimates of its cement division by 12.0%/12.2% to
MYR128.0m/MYR144.8m respectively, after incorporatinghigher selling
prices but lower 2016 sales tonnage by 0.3% (customerspotentially
stocking up ahead of the price increase).
ii. Following the completion of its acquisition of a
50% stake in Sacofa SB in late October, we factor in potential
associate contributions ofMYR3m/MYR35m/MYR36m for FY15/FY16/FY17
respectively.
iii. While we make no change to sales and EBITDA of
its building material trading division, we revise up the bottomline by
MYR8m-10m for FY15-17 as we had in the past overprovided for the profit
share by its minorities.
iv. Ferro silicon prices have plummeted in tandem
with the broad weakness across the commodity complex, thereby dampening
earnings of its 25%-owned OMS. Therefore, we now project losses of
MYR5.8m/MYR5.6m from profits of MYR5m/MYR52.6m for FY15/FY16
respectively. We also slashFY17 earnings contribution to just MYR6.4m
(from MYR68.8m previously).
All in, the revisions above have resulted in our profit estimates
being lifted by 0.6%/1.9%/1.0% for FY15/FY16/FY17 respectively.
Reiterate BUY, with our TP lifted to MYR5.88. We
value CMS based on a SOPcomputation. Post-earnings revision, we revisit
the SOP valuation of the group and make the following changes: i. We
raise our valuations for the cement and construction
divisionsaccordingly by a total of MYR579m after taking into
consideration hi gher profit estimates, but we keep the target P/E
multiples of both businesses. ii. We cut our DCF valuation for OMS to
MYR260m from MYR417m after factoring in lower earnings from this unit
from FY15 to FY18. iii. We lower our projected net cash position as at
31 Dec 2016 by MYR35.4m,which is the additional cash used to acquire
18.4m warrants of Sacofa SB. The above revisions have resulted in our
SOP-based TP being raised to MYR5.86(from MYR5.55). Maintain BUY.
Source: RHB Research - 11 Jan 2016
CMSB (2852) - Cahya Mata Sarawak - Decent Year Ahead Despite Challenging 2016
http://klse.i3investor.com/blogs/rhb/89544.jsp
