Cahya Mata Sarawak to gain from higher contribution

by ASILA JALIL / pic source:

CAHYA Mata Sarawak Bhd’s (CMS) earnings forecast for the financial year 2021 (FY21) and FY22 has been revised upwards on expectations of higher income from its associates OM Materials (Sarawak) Sdn Bhd and Kenanga Investment Bank Bhd.

RHB Investment Bank Bhd (RHB Research) raised the conglomerate’s earnings forecast for the next two years by 9% and maintained a ‘Buy’ call on CMS with a higher target price (TP) of RM2.90 from RM2.40.

“Earnings prospects for CMS’ associates OM Materials and Kenanga Investment are turning more upbeat on the ferroalloy selling price rebounds and buoyant equity trading turnover year-to-date.

“This prompts us to raise our FY21-FY22 forecast earnings by 9% to between RM217 million and RM233 million, suggesting an upside risk to the current FY21 consensus forecast of RM170 million,” its analyst Lester Siew said in a note yesterday.

Key downside risks for the TP include a resurgence of Covid-19 cases in Sarawak, delayed implementation of state infrastructure projects and higher than expected operating costs, Siew said.

The research firm assumed the average selling price for ferroalloy to range between US$1,100 (RM4,444) to US$1,200 per tonne in FY21, similar to levels hit in the second half of 2018 (2H18) up until 1H19.

“We were positively surprised by OM Holdings’ 4Q20 commentary, which indicated a quicker than expected ferroalloy sales recovery for OM Materials. This followed a demand rebound led by increased global steel production.

“Consequently, 4Q20 sales volumes of manganese alloy and ferrosilicon (FeSi) rebounded by 64% quarter-on-quarter (QoQ) to 231,000 and 2% QoQ to 172,000 tonnes respectively, albeit lower for the latter due to manpower shortages and scheduled plant maintenance,” it said.

FeSi selling prices to Japan have risen to US$1,365 per tonne as at end-December from US$1,060 per tonne in September last year due to continued restocking activities by steel mills since the end of last year.

Manganese alloy prices in Japan have also risen by 17% on a monthly basis in January to US$1,100 per tonne.

Meanwhile, RHB Research expects Kenanga Investment’s brokerage income to be boosted by robust retail securities trading this year.

Kenanga Investment, which is a 26%-owned associate of CMS, was a star performer last year, with its nine-month profit contribution leaping 3.5-fold year-on-year to RM16.5 million from RM4.5 million previously.

“This was underpinned by stay-at-home measures that drove record-high retail trading participation — which benefitted Kenanga Investment’s stockbroking arm and the jointly-owned online retail brokerage, Rakuten Trade Sdn Bhd, amid a two-fold increase in Bursa Malaysia securities average daily value or SADV in 2020, with retail shares at 38%.

“We anticipate Kenanga Investment’s recent earnings trend to carry over into 2021, as we expect the persisting stay-at-home measures to continue.”