CMS to build new plant and further increase market dominance

New plant, increasing cement production to spur growth for CMS

Borneo Post July 24, 2013, Wednesday

 Photo shows an aerial view of CMS Clinker’s facilities. RHB Research notes that the plant has been operating without any problems since March, projecting annual cost savings of RM15 million each from efficiency improvement, and switching to a local low calorific value coal source.

KUCHING: With a string of major development projects either underway or in the pipeline, busy years ahead is anticipated for construction players in Sarawak, in particular for Cahya Mata Sarawak Bhd (CMS).

According to RHB Research Institute Sdn Bhd (RHB Research) in a report on the group yesterday, growth in demand for cement will continue to push CMS forward.

To note, cement demand in 2012 was reported to be at 1.64 million tonnes compared to the grinding capacity of 1.6 million tonnes.

In fact, CMS had to import some 95,000 tonnes of cement last year to cope with demand.

“Based on conservative growth estimates of five per cent for 2013 to 2014, and a constant growth of 2.5 per cent from 2015 onwards, the group will be importing some half a million tonnes of cement to meet the shortfall in the state by 2020, although the actual deficit may be greater than estimated,” it highlighted in the report.

“This led to the board approving proposals for a new cement grinding line with a one million tonne per day (tpy) capacity, which will require a capital expenditure (capex) of RM150 million to cater to demand,” it stated.

To note, the plant’s management confirmed the construction of this new plant, which will take 18 to 24 months and is slated to begin early next year.

This was on the back of a RM78 million investment in plant upgrade works for wholly owned subsidiary CMS Clinker Sdn Bhd (CMS Clinker), which will increase the group’s production to 2,800 tonnes per day (tpd), or 896,000 tpy.

RHB Research noted that this particular upgrade had been delayed owing to technical hiccups relating to equipment supply.

“We are relieved to learn that these issues have been resolved and that the plant has been operating without any problems since March,” it stated.

“Meanwhile, we are projecting annual cost savings of RM15 million each from efficiency improvement, and switching to a local low calorific value coal source.

“The additional internally-produced clinker will also boost CMS’ bottomline from 2014 onwards. All in all, we are confident that this division – which recorded a loss of RM29 million as a result of the prolonged shutdown in financial year 2012 (FY12) – is indeed well on track to return to the black in FY13.”

To note, the group supplies about half of Sarawak’s high quality asphaltic concrete (premix) and bitumen emulsion.

It is also a substantial player in stone aggregates and a trader of various types of construction materials within Sarawak.

With the government setting its sights on the state’s infrastructure development, the research house expect the demand for construction-related materials to be well supported.

Separately, the group maintains approximately 4,800km of state roads and 680km of federal roads via two separate concession agreements expiring in December 2017 and August 2018 respectively.

RHB Research further explained that CMS’ share price has surged 75.4 per cent since its March 2013 initiation report entitled ‘Set To SCORE’.

“We believe the group’s cement division remains its c’rown jewel’ given its stranglehold on Sarawak’s cement market.

“Nonetheless, its market cap only represents an approximate estimate of the full value of its cement division, if we apply a multiple similar to its regional peers based on FY14 earnings.”