KUCHING: Cahya Mata Sarawak Bhd (CMS) will be the biggest beneficiary of the robust development activities in Sarawak and analysts believe, any potential acquisitions and new investments will likely further re-rate the stock.
This sentiment was echoed on Bursa Malaysia yesterday as the stock reached a high of RM4.34 during trading, which is five sen higher than opening price. About 983,200 shares exchanged hands.
Maybank Investment Bank Bhd’s research arm (Maybank IB Research) observed that CMS would be the biggest beneficiary of the robust development in Sarawak ahead of the state election (due June 2016) being the sole cement manufacturer and a major building materials supplier in Sarawak.
“CMS is also eyeing construction works in Sarawak including the RM27 billion Pan Borneo Highway,” it added in its note yesterday.
Although the commissioning of its associate, OMS’ plant, is slightly delayed due to technical issues, impact on earnings would be minor, the research firm pointed out.
“Nevertheless, the OMS plant would contribute significant recurring earnings in financial year 2016 (FY16) as it operates with full capacity,” it added.
“Leveraging on its strong balance sheet, potential acquisitions and new investments would further re-rate the stock,” Maybank IB Research opined.
Meanwhile, AllianceDBS Research Sdn Bhd (AllianceDBS Research) in a separate report, said CMS’ 20 per cent-owned ferrosilicon smelter plant will gradually ramp up to full production by mid-2015.
“We believe this will underpin near-term earnings growth for CMS given the plant’s cost advantages (cheaper electricity tariff), strong demand plus an off-take agreement, and a 10-year tax holiday,” it viewed.
Besides that, it also expected CMS’ key divisions to continue to do well in 2015 given that the Sarawak state government is likely increase infrastructure spending ahead of the state election in 2016.
However, the research firm downgraded its call on the stock to ‘hold’ given its limited upside. It explained, “The stock has gained circa 14 per cent since our last update, offering limited upside for now.”
AllianceDBS Research added, “Potential key re-rating catalysts in the near-term include earnings-accretive acquisitions which can be comfortably funded by its strong net cash position of RM725 million.”