PETALING JAYA: While Cahya Mata Sarawak Bhd’s phosphate operations remain lacklustre, its cement and construction material operations will likely see an encouraging recovery on the back of an anticipated growth in Sarawak’s economy.
The company, whose business interests are in cement manufacturing, construction, road maintenance, building materials and property development, is also expected to see some earnings contribution from its 75%-owned Oiltools International Sdn Bhd.
In its report, Maybank Investment Bank (Maybank IB) Research noted that Cahya Mata’s shares are currently deeply discounted vis-a-vis its prospects, and hence, could see an upside in the near term.
The brokerage maintained its tactical “buy” recommendation on Cahya Mata.
However, it revised its target price for the company to RM1.48 from RM1.57 previously after revising its earnings projections for Cahya Mata to incorporate losses expected from the latter’s phosphate operations and small earnings contribution from Oiltools.
“Excluding net cash plus short-term/long-term investments of 68 sen per share as at end-December 2022, the stock now trades at just 3.1 times the estimated price-earnings ratio for the financial year ending Dec 31, 2023 (FY23),” Maybank IB Research explained.
“Our target price implies 0.5 times FY23 price-to-book and 0.5 times price-to-revalued net asset value,” it added.
Maybank IB Research said Cahya Mata’s extremely low valuation underscored the potential upside of the company’s shares.
The brokerage recently lowered its estimated FY23/FY24 core profit after tax and minority interest (Patmi) for Cahya Mata by 15% and 7%, respectively, while maintaining the forecast for FY25.
It projected RM58mil loss (before minority interest) for Cahya Mata’s 80.2%-owned phosphate operations in FY23, which it expected to narrow to RM29mil in FY24, before breaking even in FY25.
It noted that the group had an internal target of operating cashflow neutral in FY23, and breakeven in FY24.
“The RM1bil plant is slated to start commercial operations (in phases) from April 2023, with full commercial operations targeted for end-2023, and 80% of its off-take is believed to have been locked in with the prospective buyers,” Maybank IB Research said.
Meanwhile, it noted that while cement demand had rebounded to 1.5 million tonnes in FY22 (up 14% year-on-year), the level was still below the 1.64-million-tonne peak in FY19.
“The (cement) operation continues to see strong demand into FY23. Our forecasts assume 5% demand growth per annum, with sales expected to reach FY19 (pre-pandemic) level in FY24,” it said, noting that cement segment contributed RM80mil to pre-tax profit in FY22.
“Elsewhere, Cahya Mata’s construction material and trading operation will continue to benefit from Sarawak’s economic growth,” it added.