KEY INVESTMENT HIGHLIGHTS

• 3QFY24 core net profit increased +59.3%qoq to RM60.6m
• Cement revenue declined -2.5%yoy to RM172.8m; PBT increased +22.1%yoy to RM37.9m due to improved margins
• Phosphate division's losses dragged by unrealised foreign exchange losses
• Maintain BUY with an unchanged TP of RM1.53

Above expectations. Cahya Mata Sarawak's core net profit, excluding an unrealised foreign exchange loss of -RM74.9m, almost tripled to RM60.6m in 3QFY24 despite a -0.7%yoy drop in revenue to RM299.9m, mainly due to improved gross profit margins from its cement and Oiltools division. The cumulative 9MFY24 core net profit was above expectations after rising +72.7%yoy to RM117.7m, making up 84.5% of our full-year estimates and 86.5% of consensus.

Cement division. Cement revenue was almost unchanged at RM172.8m (-2.5%yoy) during the quarter, while PBT jumped +22.1%yoy to RM37.9m. The stronger bottom line was on the back of lower imported clinker prices and improved efficiencies.

Oiltools divisions. The group's oiltools division posted a stronger 9MFY24 revenue of +4.0%yoy to RM219.3m, delivering an improved +45.0%yoy 9MFY24 PBT of RM37.5m, led by the strong performance and improvement in margins in its operations in the UAE and Indonesia.

Other divisions. The road maintenance division performed during the quarter, recording a +66.9%yoy increase in PBT to RM3.4m, led by higher revenue from road maintenance, third party and instructed works.

The property development division remained in the red with a loss before tax of -RM1.2m due to slower sales of properties. The strategic investments and support services divisions also suffered a loss before tax of -RM427k and -RM281k respectively.

Phosphate division. The division has yet to generate any revenue as it has yet to achieve commercialisation level and it continues to incur losses, which almost doubled to -RM84.9m. A huge chunk of this was from a unrealised foreign exchange loss of -RM74.9m due to a revaluation of shareholder loans to Cahya Mata Phosphates.

Earnings estimates and TP. We maintain our earnings estimates for now pending a meeting with management and as such, maintain our TP at RM1.53 as we peg its FY25F EPS of 15.3 sen to a PER of 10x based on its three-year mean.

Maintain BUY. We maintain our view that CMSB stands to be one of the main beneficiaries of a stronger construction job flow in Sarawak. The group is the only cement producer in the state currently and its production capacity is sufficient to meet the entire state's demand. We maintain our BUY recommendation on CMSB.

Source: MIDF Research - 27 Nov 2024