Cahya Mata Sarawak - “Land Of The Rising Sun” Keen On SCORE

CMS,  the  best  proxy  to  the  Sarawak  Corridor  of  Renewable  Energy (SCORE), attracted keen institutional interest during our Japan non-deal roadshow  (NDR). Its  OMS  associate and phosphate  project  under MPA are set to benefit from attractive power prices. We see upside too for its SPD subsidiary, while business growth at its other units will be SCORE-driven. Maintain BUY, with our SOP-based FV of MYR7.55 unchanged. 

- NDR in  Japan.  Last  week,  we  marketed  our  investment idea  “Sarawak Scales New Heights With SCORE” followed by a 2-day NDR on CMS in Japan,  which  successfully  attracted  keen  interest  from  institutional investors there.

- Excellent  proxy  to  SCORE.  In  general,  investors  like  this  Sarawak-based conglomerate, which is managed professionally. Most concur with our view that the group is set to benefit from the initiatives rolled out by SCORE.  This  includes  its  existing  businesses  in  the  cement, construction  materials,  construction,  road  maintenance  and  property divisions.

- More on SCORE. Investors are attracted by the offer of attractive power tariffs to heavy industries in Samalaju, Sarawak. Construction on Phase 1  of  a  power-hungry  smelting  project  by  the group’s 20%-owned  OM Materials  (Sarawak)  (OMS)  is  now  40%  complete,  with  stage commissioning expected from 2Q14. We also see positive progress in its Malaysian Phosphate Additives SB (MPA) project, as well as upside for its  51%-owned  Samalaju  Property  Development  SB  (SPD)  unit. Management  expects  the  occupancy  rate  at  its  workers  lodge  to  peak soon, while the scale of works at its hotel, amenities, and residential and commercial properties may be larger than we projected earlier.   

- Cement  division  an  immediate  catalyst.  Many  investors  are  also impressed with the group’s logistics prowess, which allows it to maintain its tight grip on Sarawak’s cement market. Meanwhile, CMS’ clinker unit, which  has  seen  smooth  operations  since  March,  is  on  track  to  bounce back  after  returning  to  the  black  in  2Q13.  The  unit  incurred  a  MYR29m loss  in  FY12  due  to  the  plant’s  prolonged  shutdown.  We  expect efficiency to improve and production to grow from FY14 onwards.