KUCHING: Cahya Mata Sarawak Bhd (CMS), one of Sarawak-based top performing stocks this year, is in for a re-rating should the company go ahead with its investment in a proposed joint venture integrated phosphate plant project in Bintulu.
In an update on the proposed phosphate plant project last week, CMS said the parties involved were in the final stages of negotiations of a shareholders agreement, technical assistance agreement and term sheet for the power purchase agreement (PPA) for the plant.
CMS management, according to Maybank IB Research, expects to conclude the plant’s joint venture soon. “That would warrant another re-rating to the stock (CMS),” the research house said in a recent report.
To recap, CMS’ wholly-owned subsidiary Samalaju Industries Sdn Bhd entered into a memorandum of understanding (MoU) with Malaysian Phosphate Additives Sdn Bhd (MPA) in June last year on the proposed joint-venture project.
MPA’s principal activity is in manufacturing and marketing of various grades of food and feed phosphates, fertilizer phosphate derivatives.
If constructed, the plant to be sited in Samalaju Industrial Park, Bintulu is expected to have an annual production capacity of 500,000 tonnes. Total investment in the plant has been put at an estimated RM850mil.
CMS group managing director Datuk Richard Curtis had told The Star in August that the Samalaju Industries-MPA joint-venture agreement, and PPA with Sarawak Energy Bhd were expected to be signed by this month. Some 200MW of power is required for the plant project.
Samalaju Industries, according to Curtis, is expected to own 30% to 40% equity interest in the project. Construction of the proposed plant is expected to commence next year for completion in two years.
Maybank Research, which has a “Buy” recommendation on CMS with a target price of RM7.20, said CMS planned to launch properties with gross development value (GDV) of RM950mil in Samalaju township project next year.
“CMS’ current valuation remains undemanding at 10x FY14 PER and 7.8x ex-net cash of RM1.31/share. It not only undervalues its cement and construction businesses but its other profitable businesses and property land bank are not priced in yet. There is further near-term re-rating potential surprise.
“CMS’ strong earnings growth trajectory should continue beyond 2015, buoyed by its expansion plans, strategic investment and property development, all long-term catalysts. Dividend yield of 3%-4% is decent,” added the research house.
RHB Research, which also has a “Buy” rating on CMS, with fair value of RM7.55, said the company posted strong results in third quarter to Sept 30, 2013 with net group profit of RM109.7mil.
“We believe the recognition of profit from a land sale in fourth quarter will pave the way for the group to chart another record year of earnings. While its newly-upgraded clinker plant is set to propel the group’s FY13/14 earnings, other units will benefit from SCORE’s (Sarawak Corridor of Renewable Energy) development, and timely land sales may also boost profit,” it added.
RHB Research said as SCORE was well on track to propel the state’s economy, this would directly or indirectly boost the growth of all CMS business units.
According to the research house, its focus is on CMS’s 20% stake in joint-venture ferrosilicon and manganese alloys smelting plant project which offers potentially rich returns given its access to 20 years of cheap power.
The proposed US$592mil smelting plant in Samalaju Industrial Park is under construction, with phase 1 expected to be commissioned by second quarter-2014.
“We also see upside for (CMS’s) 51%-owned Samalaju Property development Sdn Bhd and positive progress in its MPA project,” said RHB Research.
CMS soared to a multi-year high of RM6.99 yesterday, continuing the rally for the third consecutive week. However,the stock closed off-high due to profit taking activities after surging RM1.10 from RM5.89 on Nov 29.
It finished the day 23 sen higher to RM6.70 with volume of over 2.2 million shares, and as the fifth biggest gainer on Bursa Malaysia.
Three CMS call warrants also made hefty gains, with the CA and CB closed 4.5 sen higher at 28 sen and 39 sen respectively. CMS CC gained 4 sen to 28.5 sen.
Year-to-date, CMS has more than doubled from 2012’s close of RM3.32.