An opportune exit; maintain HOLD
The pricing for CMS’ sale of OMS is decent, at 5.4x FY21 earnings (peak
earnings) and 1.7x end-FY21 book value. The USD120m consideration
translates into MYR0.48/CMS shr; CMS has yet to disclose its plans for the
cash proceed. We think it is opportune that CMS makes it exit amid the
present commodity price rally, considering its non-controlling stake in a
highly cyclical business. No change to our earnings forecasts and MYR1.27
TP (based on 7x FY22E PER; -1SD) pending deal completion.
At USD120m EV (or USD109.5m equity value)
CMS has proposed to sell its entire 25% stake in OM Materials (Sarawak) (or
‘OMS’) and OM Materials (Samalaju) to Singapore based, OM Materials (S)
for a total USD120m cash, giving OM Materials (S) full control over the
ferrosilicon and manganese alloy smelter ops in Sarawak. The USD120m
consideration includes a full discharge of a USD10.5m shareholders loan
(plus interest) from CMS. CMS will receive the entire proceeds within 60
days from the deal closing date. A definitive agreement is targeted by 30
May. The deal requires the approval of CMS’ shareholders in an EGM.
Decent pricing, based on our estimates
The deal values OMS at 5.4x FY21 PER based on OMS’ profit contribution
of MYR88m to CMS (= [USD109.5m equity value x 4.35 USDMYR] /
[MYR351m OMS profit x CMS’ 25% stake]). OMS’ profit was at its peak in
FY21 (FY20: MYR95m loss) on high selling prices (more than doubled YoY)
which offset lower sales volume due to the pandemic. The USD109.5m
equity value is 9.7x our FY22 earnings forecast for OMS. And, based on
OMS’ net asset of MYR1.15b as of end-FY21, the deal values OMS at 1.7x.
More details upon execution of definitive agreement
The impact on CMS’ net assets and the estd. one-off disposal gain/(loss)
will be available upon execution of a definitive agreement. Excluding OMS’
profit contribution going forward, our FY22E net profit forecast for CMS
would lower by 13% (assuming half year impact) and 26% for FY23E.