KUALA LUMPUR (May 23): Analysts remain upbeat on Cahya Mata Sarawak Bhd (CMSB)'s performance for the rest of the year, despite first quarter earnings falling short of expectations. 

MIDF Research maintains their “buy” call on CMSB, with a revised target-price (TP) of RM1.50 (previously RM1.55). 

“As we roll forward our valuation base year to FY2024, we are revising our target price to RM1.50, as we peg a forward P/E [price earnings] of eight times based on –1SD (standard deviation) below its five-year mean to the FY2024F EPS of 18.7 sen,” said the research house in a report on Tuesday (May 23). 
 
MIDF trimmed their FY2023 bottom line forecasts by 21.2% to RM171.4 million, to account for the weaker associate contributions and weaker road maintenance and property development performance. 
 
“We remain positive on CMSB’s earnings outlook in FY2023, as the expected improvement in construction job flows would benefit the group in terms of cement supply, construction projects and road maintenance jobs,” it added. 

Similarly, RHB Bank maintained their “buy” call, alongside a reduced TP of RM1.48 (previously RM1.60), based on a 5.44 times 12-month FY2023 P/E at 1SD below its 15 times historical mean. 
 
The research backed their decision, as the group’s “earnings visibility should continue to be supported by robust sales volumes, underpinned by ongoing state construction projects,” added RHB Bank. 
 
RHB Bank analyst Oong Chun Sung said that its new sum-of-parts (SOP) derived TP is RM1.48, implying 7.0 times FY2023 P/E, after incorporating a 10% ESG discount. 
 
After analysis, RHB Bank cut their FY2023-2024 cement average selling price (ASP) assumptions by 2% and 4% to account for normalising cement prices, leading to their FY2023 earnings estimates to be lowered to RM225 million. 
 
RHB Bank believes that the elevated cement average selling prices are unlikely to sustain in the longer term. However, it concluded that “cement makers’ earnings visibility should be supported by robust sales volumes, underpinned by ongoing state construction projects such as the Baleh Dam (expected completion by 2026), Sarawak coastal road, second trunk road, and [the] Pan Borneo highway.”
 
As of writing, CMSB shares dropped three sen or 2.63% to RM1.11, giving it a market capitalisation of RM1.19 billion. 

MIDF commented that CMSB’s start to the year came below expectations, as core net profit for 1QFY23 came in -51.8% year-on-year (y-o-y) lower at RM35.6 million, on the back of lower profit contribution from associates following the disposal of OM Materials (Sarawak) Sdn Bhd and OM Materials (Samalaju) Sdn Bhd. 
 
Revenue for CMSB’s cement segment rose 16.6% y-o-y to RM159.3 million, thus resulting in a profit before tax (PBT) of RM37.6 million, a growth of 28.8% from 1QFY2022. Whereas, the group’s new oiltools division contributed to RM4.6 million of PBT. 
 
Meanwhile, both the road maintenance division and property development slipped into losses, to RM100,000 and RM900,000 respectively. The drop in road maintenance division is attributed to lower revenue recognition as a result of delays in instructed work. Whereas, the delayed sales of property impacted CMSB’s property development. 

The group’s new phosphate division, which is now on its way to commercialisation, took a loss before tax of RM25.7 million, as compared to the loss of RM4.1 million in the corresponding quarter in 2022, bearing in mind however, that most of the loss incurred in 2022 were capitalised as its plant in Samalaju was still in the construction phase. 

MIDF noted that although the group recently recognised a contingent liability of RM266 million in an ongoing dispute with Syarikat SESCO Bhd, it remains optimistic of an amicable resolution, considering the benefits of the phosphate production to Sarawak’s economy. 
 
“Cahya Mata Phosphates Industries is currently awaiting the approval and necessary licences to sell its products before it enters the commercialisation stage,” MIDF said.