CMS makes a comeback, smoother path ahead
KUCHING: Cahya Mata Sarawak Bhd (CMS) recorded a decent third quarter of 2016 (3Q16) despite the temporary setback earlier this year and analysts believe the group will see a smoother path ahead.
In a report, RHB Research Sdn Bhd ( RHB Research) said the kitchen sinking exercise from the close of its hedging position at OM Materials Sarawak Sdn Bhd (OMS) helped to turn associates earnings back into the black.
“Furthermore, performances at all its other business units normalised after weak start to the financial year 2016 (FY16).”
To note, CMS recorded a pre-tax profit (PBT) of RM160.41 million for the first nine months of 2016 (9M16) while its 3Q PBT was at RM94.74 million, an improvement of 122 per cent compared with 2Q16.
On its prospects, Research expected CMS’ 25 per centowned OMS would see gradual improvements as the remaining RHB 10 furnaces are progressively commissioned although a full turnaround is only expected from 3QFY17 at the earliest. CMS’ traditional businesses such as cement, materials & trading, and construction & road maintenance units are all set to continue to benefit from the RM16 billion Pan Borneo Highway (Sarawak) project and Sarawak Corridor of Renewable Energy (SCORE) development. Aside from that, the research team expected that CMS would see full-year earning contribution from its 50 per cent-stake in Sacofa Sdn Bhd (the sole telecommunication tower service provider in the state) from FY16 onwards. Overall, RHB Research upgraded its call on CMS to ‘buy’ as it expecte CMS’ financial performance to continue to improve.
Meanwhile, AllianceDBS Research Sdn Bhd ( AllianceDBS Research) noted that share of results from CMS’ associates were RM8 million in 3Q16 compared to a share of loss of RM32 million in 2Q16.
“While we are not entirely sure, we think this could be partly driven by positive forex gains from the translation of ringgitdenominated payables at OMS (that is the stronger US dollar makes payment for ringgit-based payables cheaper).
“Operationally, OMS’ production grew a modest three per cent quarter-on-quarter (q-o-q), though sales tonnage improved by 14 per cent q-o-q following slight recovery in the ferrosilicon market in Asia,” it added.
The research team pegged a less optimistic view on the group. It pointed out that while most of CMS’ key operating segments should improve further in the subsequent quarters from the rollout of Pan Borneo Highway projects, it expected to see ongoing weakness at OMS to be a drag on earnings and sentiment on the stock.
“As such, we do not foresee a major re- rating of CMS’s share price unless there is a turnaround in OM Sarawak from improving ferrosilicon prices,” it said, maintaining its ‘hold’ call on the stock.