Strong rebound for CMS in 4Q, work to pick up
KUCHING: Cahya Mata Sarawak Bhd’s (CMS) 4QFY20 normalised earnings for its fourth quarter of financial year 2020 (4QFy20) rebounded strongly by 131.8 per cent quarter on quarter (q-o-q) to RM96.5 million. This was mainly driven by the prompt resumption of its core business operations.
Cumulatively, the group’s FY20 normalised earnings decreased by 37.5 per cent year on year (yo-y) to RM99.7 million, excluding a remeasurement gain and gain on disposals totalling RM162.95 million from the sell-down of a two per cent stake in PPESW and SEDCR to SEDC.
The lower earnings were primarily dragged by lower contributions from its key core traditional business divisions in the first half of FY20, said MIDF Amanah Investment Bank Bhd (MIDF Research).
“Moving forward, we expect CMS’ traditional core business activities to pick up pace in FY21,” it said in its notes yesterday.
For its cement and construction materials and trading division, the operating profit in FY20 declined by 34 per cent y-o-y to RM48.4 million while the latter decreased by 57.3 per cent y-o-y to RM3.8 million respectively.
“Nonetheless, the financial performance of both segments is set to rebound strongly in FY21,” it said, adding that this is premised on better cost rationalisation initiatives and lower raw material prices.
“We opine that these two divisions would post better financial performance in FY21 on the resumption of operations and construction activities moving forward.
“The improvement could be underpinned by cheaper imported clinker, lower repair and maintenance cost and, lower discharging costs at its the clinker plant, and robust demand of crushed aggregates for quarry sector.”
Meanwhile, CMS’ order book at its construction and road maintenance division remain healthy. The profit before tax (PBT) of this division declined 60 per cent y-o-y to RM14.8 million.
The factors that steered down the profitability of the construction and road maintenance division includes more scope under the new road maintenance contract whilst the value of contract remains unchanged and, lower revenue contributed by construction works due to less work performed this quarter.
“However, it is worth noting that this division’s order book stood at RM1.03 billion as of end of December 2021 which provides earnings visibility for the next two years,” MIDF Research added.
“Moving ahead, we posit that the construction and road maintenance division will continue to derive stable recurring income from its road concession which is currently involving the maintenance of approximately 3,343km of State roads.
“We posit that the group’s revenue and earnings prospects remain healthy moving forward in anticipation of recovery in FY21 earnings following the presumption of construction and business activities as seen during the CMCO in 4QFY20.”
Moreover, the group’s business operations were not much affected during the second movement control order (MCO 2.0_ as it deemed as essential services for the construction and business activities in Sabah and Sarawak regions.
The group’s prospect is also well-supported by its healthy outstanding order book of about RM1.03 billion for its construction and road maintenance division which will provide earnings visibility over the next two to three years.
“Meanwhile, we are of the view that CMS could continue to be a beneficiary from the potential mega infra projects roll-out in the state of Sarawak and Sabah – including the SarawakSabah Link Road, Coastal Road, Trans-Borneo Highway project, Sarawak Water Supply Master Plan and Water Grid, Sarawak Petrochemical Hub – in the foreseeable term.
“In addition, we believe the development expenditure of RM9.6 billion allocated for the state of Sabah and Sarawak under Budget 2021 and the commitment of the Sarawak’s state government of an additional RM9.8 billion budget for the state alone with the majority of funds earmarked for developments would bode well with the group’s order book replenishment rate moving forward.”