Cahya Mata Sarawak Bhd (CMS), a major corporate player in the Borneo region, is upping its game via a diversification into the energy sector amid the current high oil prices.
The conglomerate, which has a presence in cement, building materials and construction, among others, is acquiring the oilfield operations of Scomi Energy Services Bhd - a deal that will give it presence in 15 countries across Asia, Middle East, Europe and Africa when completed in the third quarter of 2022.
Towards this end, CMS through two of its subsidiaries had entered into four conditional sale and purchase agreements with Scomi Energy to acquire Scomi Oilfield Ltd (SOL), together with various companies and assets within that group of companies.
Notably, this is one of CMS’ major venture to streamline the business portfolio under Datuk Seri Sulaiman Abdul Rahman Taib, who returned as the group’s managing director in the middle of last year.
“CMS is over four decades old and is seen as in need of a new growth catalyst. The venture will give an international platform where synergies can be tapped with the group’s existing businesses,” says one industry observer familiar with the CMS group.
He adds that the group, which is controlled by the Sarawak Taib family, is also looking to move into Kalimantan in a big way where the relocation of Indonesia’s new capital could provide another avenue for growth.
Back to SOL, the price tag at RM21mil is seen as a “bargain” by some as its operations are earnings before interest, taxes, depreciation, and amortisation (Ebitda) positive and asset light.
CMS will also not be taking on additional debt with the acquisition and plans to fund it via internal funds.
SOL provides drilling fluids and drilling waste management services catering to the oil and gas (O&G) industry. According to sources, the company has a healthy orderbook, which will keep it busy for the next one-and a half years. As for tenders, it is believed to be bidding for some US$200-US$300mil (RM840.4mil-RM1.26bil) worth of projects over the next six months.
However, some say that the oilfield services is competitive one and could translate to low profit margins. On the other hand, others feel that the group may be able to grow this segment as the drilling waste management services could potentially be extended to other sectors like steel. This would be in line with CMS’ push into sustainability as a business strategy.
Earnings-wise, the group envisages the new venture becoming an important contributor backed by the anticipated increase in overall drilling activities in the O&G sector, as well as the restructuring of the global energy supply chain.
News on CMS’ diversification did not fire-up investor interest in the stock, which closed one sen down yesterday to RM1.11.
Amid a weak market dampened by the Russia-Ukraine war, sentiment on the stock has been weighed down over concerns of corporate governance.
However, Maybank Investment Bank Group Research in a recent report noted that CMS has strengthened its risk oversight at both board and management levels. Other corporate governance initiatives include a new investment committee to review all proposals to the board and an independent group risk division to drive risk management. An environmental, social, and governance or ESG framework is also believed to be in the works with details expected to be announced in the second quarter of 2022, according to the research firm.
Where CMS’ traditional businesses are concerned, they are poised to benefit from the higher development activities in Sarawak.
On the construction front, it has an existing tender book is circa RM1bil comprising works relating to Kuching Autonomous Rapid Transit, petrochemical plant earthworks, roads and underpasses.
Meanwhile, the group also is looking to ramp-up production at OM Materials (Sarawak) Sdn Bhd (OMS), which has been benefiting from the commodity boom. And after an almost two-year delay due to technical and commissioning issues due to Covid-19, its investment in Malaysian Phosphate Additives (Sarawak) Sdn Bhd (MPAS) is finally taking off.
Phase 1 of the plant would start “firing all its furnaces” in the second quarter of 2022 and commission in phases from financial year 2022 till early-2023.
For the fourth quarter ended Dec 31, 2021, the group made a net profit of RM24.35mil, bringing full year 2021 profitability to RM203.41mil.
At yesterday’s closing price, the stock commanded a market cap of RM1.19bil.