4Q21: Positively surprise
Deep in value; maintain tactical BUY
4Q21 headline net profit included MYR45m negative one-offs. Net of this, core net profit positively surprised on strong assoc contribution which more than offset weak Cement earnings. Our FY22/23E net profit are trimmed by 2%/3% after realigning our assumptions. Our RNAV est. is however raised to incorporate a strengthened balance sheet end-FY21. Based on unchanged 0.7x RNAV peg, our new TP is MYR1.84 (+10%). The stock remains deep in value – at 6.7x FY22E PER, 0.4x P/B, 0.46x e.RNAV.
4Q21 core profit up 28% QoQ, FY21 +120% YoY
4Q21 headline/core net profit was MYR24m/MYR69m, bringing 12M to MYR203m/MYR219m. 12M core profit was 15%/10% above house/street forecasts. 4Q assoc contribution jumped 57% QoQ; much of this, we estimate, came from OMS on higher volume sales of FeSi/Mn alloy (+45%/ +33% QoQ). Higher assoc profits more than offset weak Cement earnings which was at-about breakeven at the pretax level due to high production and potentially repair costs despite higher volume off-take, with revenue up 12% QoQ. Property booked in a land sale gain of MYR9m in 4Q. The one-offs in 4Q comprised (i) diminution in value of investment in an assoc (MYR16m), (ii) impairment loss on a loan to an assoc (MYR29m).
Cement price hike to restore margin; some optimism
The average 10% hike in cement price wef 17 Feb 2022 (last hike was in 2016) would help offset rising production cost (FY21: +9%), thus restoring margins. Management expects cement demand to pick up on resumption of works on ongoing projects. Outstanding construction orderbook (exroad maintenance) was MYR0.67b as of 31 Dec 2021; CMS is making every effort in its bids for new infra and road maintenance projects.
Revising earnings & RNAV est.; eyes on governance
Our 2-3% earnings downgrades are mainly due to a change in the status of KKB to ‘investment’ from ‘associate’ due to a lower 17.9% holding by CMS (from 20%) following new KKB shares issuance. Our RNAV uplift is largely due to a lower group net debt of MYR353m end-FY21 (end-FY20: MYR569m). Our revised TP of MYR1.84 implies 10x FY22E PER, below its LT mean of 14x. Our TP factors in a 30% governance ‘discount’ to e.RNAV due to an issue in 2021; we will continue to monitor for progress.