CMS prospects bright despite clinker production hiccup
Cahya Mata Sarawak Bhd’s (CMS) prospects remain bright despite a slight hiccup in its clinker production earlier this year.
In a report, the research team at MIDF Amanah Investment Bank Bhd (MIDF Research) noted that cement is CMS’ main revenue contributor in the first half of the financial year 2023 (1HFY23), making up 52 per cent of the group’s revenue during the period.
However, the gross profit margin came in slightly lower during the period at 23 per cent as compared to 25 per cent last year due to a malfunction of the conveyor at one of its plants in April, which affected clinker production.
“The problem has since been fixed and the plants are operating as usual.
“Moving forward, the group expects the proposed construction of its new clinker line with a production capacity of 1.9 million metric tonne per annum to lower its reliance on imported clinker, reduce operating costs and improve long-term profit margins,” it said.
There is also an upcoming scheduled maintenance this month, which will take approximately two weeks.
However, it pointed out that the group has taken the preemptive measures to stockpile cement ahead of the expected downtime to ensure sufficient supply of cement during the period.
On its oiltools division, a relatively new business segment for CMS, the research team pointed out that the segment has turned out to be a strong contributor to the group’s revenue of 23 per cent for 1HFY23.
“The outstanding order book stands at about US$129 million in the eight countries that it operates in, with earnings visibility up to three years,” it added.
On the issue of its phosphate division, MIDF Research said, while there has yet to be any new updates on the ongoing arbitration with Sesco Bhd following a dispute that led to the electrical supply termination to the phosphate plant in Samalaju, management revealed that the plant was still in operation using generator sets.
“Asked if an amicable resolution was still possible, management only said they are not ‘leaving anything off the table’,” MIDF Research remarked.
All in, the research team maintained its ‘buy’ call on the stock.
It said: “We continue to like CMS, with a positive outlook on its earnings expectations as it is a beneficiary of stronger construction job flows in Sarawak, being the state’s sole cement producer.
“This is also in line with management’s optimism on leveraging on strong prospects for Sarawak’s economic growth.
“The group’s cement plants’ utilisation rate of about 55 per cent is sufficient to cater for the state’s annual demand and opportunities are in store to ramp up production to tap into new markets such as Sabah, Brunei and Nusantara.”