Strengthening framework
Maintaining estimates and tactical BUY call
Management is optimistic, expecting CMS’ traditional core businesses to benefit from higher development activities in Sarawak while its strategic investments – MPAS and OMS – would ‘fire up’ in 2022. We make no change to our earnings forecasts and TP. Trading at 5.9x FY22E PER, 0.4x P/B and 0.4x our e.RNAV, the stock is deeply discounted. Our TP, based on 0.7x RNAV, implies 10x FY22E PER vs. LT mean of 14x.
Traditional core businesses to benefit
Key take-aways from post-4Q21 results briefing: (i) Cement – internal expectation is for margins to recover post price hike (avg. 10%) from 17 Feb (MIBG Res: Operating margin was at 27% in FY16, coming off to 20% in FY20; the op was at-about breakeven at the pretax level in 4Q21). (ii) Construction – existing tender book is c.MYR1b comprising works relating to Kuching Autonomous Rapid Transit, petrochemical plant earthworks, roads and underpasses. Management is optimistic on CMS’ traditional core businesses – cement, construction materials and construction – benefiting from higher public infrastructure and housing projects.
Strategic investments to ‘fire up’
(iii) After an almost 2-year delay due to technical and commissioning issues, exacerbated by the pandemic, MPAS Phase 1 plant would start firing all its furnaces in 2Q22 and commission in phases from YE2022 till early-2023. Contracted sales is >80%. (iv) At OMS, 4 of its 16 furnaces will be converted this year, to an eventual mix of 6 furnaces producing FeSi, 8 Mn Alloy and 2 MetSi (2021: Only 12 furnaces were in operation with 6 producing FeSi, and 6 Mn Alloy). Overall production run rate is expected to slow in the near-term before recovering in the later part of 2022.
ESG framework details in 2Q22
Corporate governance initiatives include (i) strengthening risk oversight at both Board and management levels, (ii) a new Investment Committee to review/recommend all proposals to the Board, (iii) an independent group risk division to drive risk management, (iv) strengthening integrity and accountability of all sr management towards a culture of governance and growth. An ESG framework is in the works; details expected in 2Q22.