CMS bullish on building material demand recovery

TheStar Thu, Mar 04, 2021 08:30am - 2 months ago

KUALA LUMPUR: Cahya Mata Sarawak Bhd (CMS) is optimistic of a better financial performance this year, given the anticipated gradual recovery in the demand for building materials in Sarawak following the relaxation of movement restrictions, according to TA Securities Research.

Following an analyst briefing, TA Securities Research said CMS management expects demand for cement to be around 1.6 million tonnes in 2021, backed by ongoing infrastructure projects such as the Pan Borneo Highway, Coastal Road, and Baleh Hydro Dam.

The group’s clinker plant is also on track to increase its production to 750,000 tonnes and 800,000 tonnes for the financial year ending Dec 31,2021 (FY21) and FY22, respectively, in order to be less reliant on imported clinker.

Meanwhile, AmInvestment Bank Research estimated that CMS’ dependence on clinker imports, which is largely from Peninsular Malaysia and other part of South-East Asia, will decline to between 45% and 50% from 60% previously.

The sizes of the clinker and cement markets in Sarawak are about 1.4 million and 1.7 million tonnes annually, respectively.

For the construction materials and trading division, TA Securities pointed out that CMS management guided that the demand for aggregates has started to pick up and the group is looking for a new quarry to increase the current production capacity.

The order book for its construction division stood at RM1.2bil as at fourth quarter 2020. This could provide earnings visibility to the construction division till 2022.

“CMS is tendering for rural road maintenance jobs with a total road length of up to 6,000km. On the other hand, its property development division is expected to remain flattish, ” said TA Securities.

AmInvestment Research said CMS management had also guided for a turnaround of 25%-owned associate OM Materials (Sarawak) in FY21 (which is consistent with the research unit’s forecast of RM40mil profit in FY21), from RM23mil losses in FY20.

This is on the back of an uptrend in global commodity prices (ferrosilicon included), driven by a synchronised recovery in the global economy, underpinned by the availability of effective vaccines.

Ferrosilicon (FeSi) is currently trading at US$1,400 to US$1,500 per tonne, well above the research unit’s estimated breakeven price of US$950 per tonne.

AmInvestment Research said OM Materials (Sarawak) will achieve profitability despite only six out of its total of 10 FeSi furnaces being operational.

Of the four units that are offline now, two are being converted to produce silicomanganese and there are plans to convert the other two to produce metallic silicon.

The reason for the conversion is that silicomanganese and metallic silicon provide more stable margins compared to FeSi.

All these four units are expected to come back online in FY22.

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