Cahya Mata to bank on demand for cementBY TOH KAR INN
The construction proxy picked up momentum in mid-May and have since registered a share price growth of 17.7% as of Aug 12. CMSB is a good construction proxy for investors looking to capitalise on Sarawak’s wave of new infrastructure project.
PETALING JAYA: Although Cahya Mata Sarawak Bhd (CMSB) stock fell drastically in April ahead of the Sarawak state election, interest seems to be stirring of late. CMSB has been lagging behind due to the
weakness of its ferrosilicon business while many other construction stocks had rallied, analysts said.
The construction proxy picked up momentum in mid-May and have since registered a share price growth of 17.7% as of Aug 12. CMSB is a good construction proxy for investors looking to capitalise on Sarawak’s wave of new infrastructure project.
This is because construction players who have clinched these projects in Sarawak are likely to rely on CMSB for the construction materials, given that CMSB has a dominant market share in the state’s cement business.
With the biggest packages of the
RM16bil Pan Borneo Highway portion already handed out, construction players will now focus on increasing capacity and sourcing for materials.
Some RM9bil worth of contracts from the total RM16bil had since been awarded by Lebuhraya Borneo Utara Sdn Bhd to expedite the construction of the 1,089km Sarawak portion of the highway which stretches from Telok Melano to Merapok.
The ramping up of new infrastructure developments meant that construction materials suppliers would need to increase capacity in order to meet the incoming demand spike.
CMSB had a dominant market share in construction material supply in Sarawak, as it
owns the only two cement manufacturing plants there with a combined annual capacity of 1.75 million tonnes.
“Each successful contractor will only get a parcel of the Pan Borneo Highway project,” said Alliance DBS Research.
“Therefore, we do not expect CMSB to clinch any further contracts for this project.
“CMSB will still benefit from the
higher demand for its cement as well as construction materials and trading divisions,” according to Alliance DBS Research.
CMSB’s new RM190mil cement plant with one million tonnes per annum capacity in Mambong is ready to meet demand which is expected to reach 1.8 million tonnes in FY16. M&A Securities reported that
demand was expected to grow by 3% to 4% every year.The group estimated that the Pan Borneo Highway project would
need 12,000 tonnes per year until 2021. The cement plant is currently operating at
65% to 70% capacity.
“The new plant will also provide CMSB with reserve capacity in the event that its other plants are shut down for maintenance,” said Alliance DBS Research.
The Pan Borneo Sarawak Highway project contract win was expected to triple CMSB’s
outstanding order book to RM1.45bil while bolstering demand for its building materials.
The job scope involved the development and upgrading of the Sungai Awik Bridge- Bintangor Junction stretch, expected to be completed by mid-2020.
CMSB’s 70% stake in the joint venture with Bina Puri for the RM1.36bil contract implied RM951mil for its portion of the contract value. This increased CMSB’s outstanding order book significantly by three times to RM1.45bil.
Assuming a pre-tax profit margin of 8%, Maybank IB Research forecast a total net profit contribution of RM30mil over four years into 2020.
An analyst opined that CMSB’s financial performance would depend on whether ferrosilicon prices recover.
OM Materials Sarawak Sdn Bhd, a 25%-owned subsidiary of CMSB, which operates a ferrosilicon alloy smelting plant, faced a plunge in commodity prices and weak ringgit in 2015. This eventually led to huge
hedging losses which amounted to US$15mil to US$20mil. Ferrosilicon prices as quoted by the Zhengzhou Commodity Exchange have been on an upward trajectory since December last year, with an increase of 35.7%.
“Investors can look forward to the group’s upcoming second quarter results announcement, as well as the loan restructuring of its associate OM Materials (Sarawak) Sdn Bhd, which will mitigate the impact of hedging losses to CMSB,” she said.
According to an analyst, CMSB will be taking up additional gearing for its 40%-owned business, Malaysian Phosphate Adhesives Sdn Bhd. “It is not expected to be too excessive, so it should not be a concern,” she said.
From a valuation standpoint, CMSB currently trades at a
price-earnings ratio of 21.4 times. The group’s balance sheet has a
net cash value of RM140mil, as of March 2016.
Alliance DBS Research said that the group’s cash balance had reduced significantly in 2015 as it acquired Sacofa Sdn Bhd and purchased landbank in Samalaju.
CMSB reduced its dividend payout to 20% in financial year 2015 in order to conserve some cash.
Source: The Star
http://www.thestar.com.my/business/busi ... or-cement/
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