We initiate coverage
on Cahya Mata Sarawak (CMS) with a BUY, and SOP-based MYR4.21 FV, implying 0.9x
FY13 BV. SCORE’s development is set to propel the state’s economy and benefit
this Sarawak-based group, whose core activities are in cement, construction
materials, road maintenance and property. CMS’ participation in SCORE via the development
of worker camps and a township will bring in decent returns, while its 20%
stake in the Samalaju smelter project provides delectable returns, helped by 20
years of cheap power.
Unique conglomerate
set to take off. CMS is a conglomerate run by professional managers, with
most of its businesses based in Sarawak. The launch of the “Sarawak Corridor of
Renewable Energy” (SCORE) is set to take the state economy to new heights, as
well as bolster CMS’ cement, construction materials, construction and road
maintenance divisions. The timely upgrade of its clinker plant will also boost
the group’s upstream volume, raise efficiency and more importantly, turn around
the division, which was in the red in FY12.
Solid mid-term
growth. CMS owns a large landbank around Kuching with good development
prospects and a low book value that may potentially drive its medium-term
earnings. It will participate directly in SCORE via 51%-owned Samalaju Property
Development (SPD), whose first undertaking is the development of temporary
worker camps, followed by a fast-track township in Samalaju Industrial Park
(SIP). Meanwhile, its 20% stake in an OM smelting project in SIP provides rich returns, thanks
to 20 years of cheap power.
BUY, FV MYR4.21.
Excluding exceptional items, CMS’ financials have been improving steadily. Now
the time has come for the group to charge up its profits as well as reward
shareholders via its 30% dividend payout policy. CMS is certainly undervalued
based on our conservative SOP. Applying a 20% discount and ex-OM’s DCF value,
we derive a FV of MYR4.21, implying 0.9xBV and 8x FY13 earnings. BUY.
Source: RHB
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