Tactical U/G to BUY
1Q22 core net profit of MYR72m was 37%/34% of our/consensus FY22E,
with the beat coming from its cement, road maintenance and property
ops, and strong assoc contribution. We make no change to our earnings
forecasts pending completion of sale of its 25% stake in OMS. The stock
now offers >10% upside (incl. div yld) to our unchanged MYR1.27 TP (based
on 7x FY22E PER; -1SD of LT mean). Tactical U/G to BUY.
Core net profit up +123% YoY, +5% QoQ
Cement pretax margin was a strong 21.3% (+4.4ppts YoY) on higher demand
and an avg. 10% hike in selling price wef. 17 Feb 2022. Revenue adjustment
for routine road maintenance works boosted road maintenance profit,
while a downward revision in budgeted cost for an office building project
boosted property profit. 1Q assoc contribution jumped 51% YoY, we believe
coming from OMS on higher volume sales of FeSi/Mn alloy (+23%/+13% YoY)
and selling prices (FeSi: +>50% YoY). Assoc remained the largest
contributor to group pretax at 55%, cement at 35%.
Optimistic on prospects
The group expects improved performance across all its operations in 2022
amid better economic growth, development spending and more positive
business sentiment. Its cement op has embarked on new cost efficiency
initiatives to help off-set the impact of higher material costs. Its
phosphate plant project under MPAS (60%-owned) is scheduled for
commercial operation by end-2022. Management remains focused on the
time-line and success of this project.
Two deals pending completion
CMS’ proposed acquisition of Scomi Oilfield Ltd plus 12 other companies
and assets within the Oilfield Group of Companies for a total MYR15.75m
cash (for its 75% share) is expected to complete in 3Q22. Management had
earlier alluded that CMS is not taking over any debt, receivable nor
guarantee. Elsewhere, sale of its 25% stake in OMS for USD120m cash is
pending execution of a definitive agreement by 30 May 2022. 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.