CAHYA Mata Sarawak Bhd’s (CMS) proposed disposal of its 25% associate OM Materials (Sarawak) Sdn Bhd and OM Materials (Samalaju) Sdn Bhd for US$120 mil (RM520.7 mil) has been deemed by analysts as a timely move.
Maybank IB Research regarded it as “opportune” that CMS made its exit amid the present commodity price rally, considering its non-controlling stake in a highly cyclical business.
“The pricing for CMS’ sale of OMS is decent at 5.4 times its FY2021 earnings (peak earnings) and 1.7 times end-FY2021 book value,” opined head of research Wong Chew Hann in a company update.
“The US$120 mil consideration translates into 48 sen/CMS share; CMS has yet to disclose its plans for the cash proceed.”
Nevertheless, Maybank IB Research is sticking to its “hold” rating with a target price of RM1.27 pending deal completion.
Yesterday (May 5), CMS announced that it planned to sell its entire 25% stake in both associate companies to Singapore-based, OM Materials (S) Pte Ltd, thus giving the Singaporean company full control over the ferrosilicon and manganese alloy smelter ops in Sarawak.
The offer remains valid up to May 30 or upon execution of a definitive agreement whereby the proposed disposal is subject to approval by the company’s shareholders at an extraordinary general meeting (EGM).
“Excluding OMS’ profit contribution going forward, our FY2022E net profit forecast for CMS would lower by 13% (assuming half-year impact) and 26% for FY2023E,” Maybank IB Research pointed out.
Although the disposal will help the group to unlock the value of its investment in OMS and further strengthen its capital position, TA Securities Research expects an earnings gap in CMS’s near-term earnings.
“Based on our rough estimates, the disposal would result in up to a 30% FY2022 earnings per share (EPS) reduction for CMS, after taking out all the earnings contribution from OMS,” projected analyst Chan Mun Chun in a company update.
“Therefore, we believe it will take some time for the group to fill up the earnings vacuum. Meanwhile, the sales proceeds could be used as working capital to kick-start Phase 1 of its integrated phosphate complex in Samalaju Industrial Park.
Alternatively, CMS may opt to use the proceeds to pare down the borrowings, according to TA Securities Research.
“If we assume all the proceeds for repayment of debts, the group will become a net cash company with net cash of RM167.9 mil (from net debt of RM352.8 mil as of 4Q FY2021),” added the research house.
TA Securities Research has reiterated its “buy” rating on CMS with an unchanged sums-of-part (SOP)-based target price of RM1.70.
At 11.17am, CMS was down 1 sen or 0.89% to RM1.11 with 1.58 million shares traded, thus valuing the company at RM1.19 bil. – May 6, 2022
