BUSINESS and politics are synonymous in Sarawak. With political changes taking place, the dynamics of business could well change. Below are six stocks investors should pay close attention to:
Cahya Mata Sarawak Bhd
Counted as the flagship listed company belonging to the family of Tan Sri Abdul Taib Mahmud, Cahya Mata Sarawak Bhd (CMS) would be the most closely watched among all Sarawak-listed stocks in the next few weeks.
Family members of Taib collectively own 42.7% stake in the company that is easily the largest private sector entity in the state.
CMS is touted as the main beneficiary of large projects undertaken in the state and a direct proxy of the state’s growth story.
The company, which started out as a cement manufacturer, has a finger in almost every sector, from construction, property development, road maintenance, and financial services to education with assets totalling RM2.2bil as at the end of September 2013.
It is no denying then that CMS has been a favourite of investors looking for a play on the state’s rapid development. Last year its share price rose over 100% after news that Barisan Nasional returned to power in the most-closely fought general election.
Year to date, its share price is down 1.16% to finish Friday at RM6.79 with a market cap of RM2.3bil.
Analysts believe that concerns over the political risks associated with Taib leaving are overdone as most of CMS earnings are secured through its overpowering presence and long-term contracts. For instance, CMS is the sole cement and clinker manufacturer in Sarawak, contributing to almost half of CMS bottom line.
CMS new growth engine is expected to come from exposure to the lucrative Sarawak Corridor of Renewable Energy (Score) project via its 51%-owned Samalaju Property Development.
Of interest and one that is possibly linked to its political ties is CMS road maintenance concession, which is the “cash cow”.
For the financial year (FY) ending December 2012, the company posted a recurring net profit of RM135.7mil from a turnover of RM1.2bil. Notably the road maintenance segment contributed 35% to its profit after tax and minority interest of RM139mil in FY2012, higher than the 34% that came in from the cement segment.
Naim Holdings Bhd
Property developer Naim Holdings Bhd is set to benefit from the development of the property boom in the Samalaju industrial area in Bintulu.
It has paired up with CMS and Bintulu Development Authority to develop a township there, which caters for Japanase and South Korean expatriates.
Its other flagship developments include Bandar Baru Permyjaya in Miri, Desa Ilmu in Kota Samarahan, and the up-market Riveria satellite township in Kuching.
Chairman and substantial shareholder Datuk Abdul Hamed Sepawi holds a direct stake of 4.85% in the company, according to Bloomberg data.
It was reported that Taib’s associates and entities related to him hold a collective 36%.
The property player also owns 31% of oil and gas firm Dayang Enterprise Holdings Bhd, which is worth RM956mil. This is greater than Naim’s market cap of RM805.6mil.
Last month, it realised part of its investment in Dayang by disposing of 15 million shares, bagging RM84mil from the divestment.
The Class A contractor has also bagged jobs from the Klang Valley Mass Rapid Transit project. The contracts worth RM412mil, which also marked its foray into the peninsula, may mitigate part of the slowdown in its home turf if there is any.
It has an order book of RM1bil.
Dayang Enterprise Holdings Bhd
Miri-based Dayang Enterprise found favour with investors last year amid its string of major contracts from oil majors involving the provision of hook-up, commissioning and topside maintenance services.
The stock, one of the stock market’s top 20 gainers for 2013, rose more than 100% last year and year to date, it is down by 2%
The major shareholder of the company is Naim Holdings Bhd which has a 30.91% stake in the firm. Among the shareholders of Naim is Datuk Abdul Hamed Sepawi, a cousin of Taib.
Jobs-wise, the service provider for the oil and gas industry, has ongoing contracts worth more than RM4bil that should sustain it for the next four years.
Its newer contracts were from Sarawak Shell Bhd/Sabah Shell Petroleum Company Ltd (worth over RM2bil), Murphy Sarawak Oil Co Ltd (RM313.6mil), Petronas Carigali Sdn Bhd and JX Nippon Oil & Gas Exploration (M) Bhd, the values of the last two were not disclosed.
For the nine months ended Sept 30, Dayang made a net profit of RM125.6mil or 22.86 sen per share against a net profit of RM88.4mil or 16.09 sen per share for the same period a year earlier.
Sarawak Cable Bhd
By virtue of its position as the only integrated power cable and transmission player in Sarawak, Sarawak Cable plays a crucial role in powering up the Sarawak Corridor of Renewable Energy and the entire state.
The main shareholder of the firm is Taib’s son, Datuk Seri Mahmud Abu Bekir Taib, who holds a 20.69% stake in the company.
State-owned Sarawak Energy Bhd (SEB) is also one of its major shareholders.
In a November 2013 note, AmResearch analysts who visited the company said Sarawak Cable was expected to secure more transmission jobs in the state.
It listed as its potential jobs in the mid-term, the Tanjung Manis-Bintulu and Mambong-Kalimantan lines worth RM400mil.
It was also learnt that new dams for Baram (1,200MW) and Balleh (1,300MW) are currently at the final feasibility stages while the Balingan coal-fired plant (600MW) project is expected to be awarded by year-end and Sarawak Cable will be the main contender for such jobs.
More recently, Sarawak Cable obtained a RM32.87mil contract by SEB to build the proposed 132kV Tudan-Miri Airport transmission line.
The group’s recent earnings have been hit by weak demand for its products including power cables and conductors, galvanised steel products and transmission towers.
In the third quarter to Sept 30 last year, its revenue fell to RM40.1mil from the RM70.7mil recorded in the year before’s corresponding period while pre-tax profit dipped to RM167,000 from RM2.65mil in the same period.
KKB Engineering Bhd
Steel maker KKB Engineering’s status as Cahya Mata Sarawak Bhd’s (CMS) associate company gives it an advantage in getting more jobs. Some come in the form of collaboration between the two.
It started when the two companies entered into a land sale agreement end-2007 whereby CMS subsidiary CMS Steel disposed of its assets worth RM32mil to KKB. The transaction was repaid by the issuance of 16 million new KKB shares at RM2 apiece to CMS.
In 2008, KKB became a CMS associate.
Currently, CMS owns 51.7 million shares, or 20%, of KKB.
Over the years, KKB received jobs to supply steel products to CMS, such as a contract to supply additional mild steel pipes and steel specials to a CMS subsidiary valued at RM227mil till May 2015.
It also got a slice of the Bakun Hydroelectric Dam project.
Some analysts opine that KKB may ride on CMS significant role in Score for the growth of its civil construction and steel fabrication arms.
One of the jobs it scored there is the RM171mil contract for structural steel and cladding work on the proposed ferro-alloy complex by Pertama Ferroalloys Sdn Bhd in the Samalaju Industrial Park in Bintulu.
According to AmResearch, that particular contract lifts its financial year ended Dec 31, 2013 (FY13) to FY15 net profit forecasts by 3% to 12%.
The research house also notes that KKB’s 43%-owned Oceanmight Sdn Bhd has a few oil and gas jobs in the pipeline, including a potential bid for Petronas’ production sharing contract worth up to RM350mil.
Ta Ann HoldiNgs Bhd
Ta Ann has five timber concessions in Sarawak totalling 359,180ha, according to the company’s website making it the largest player next to Jaya Tiasa Holdings Bhd. It also has interest in oil palm plantations and plywood manufacturing.
Ta Ann’s major shareholder is Mountex Sdn Bhd with a 20.6%, the vehicle of Hamed Sepawi. Hamed Sepawi also has a direct 8.84% stake in the company. Another shareholder of Mountex is Datuk Wahab Dolah who has a 10.98% stake in Ta Ann.
CIMB Research in a note early January expected the timber sector to benefit from a weaker ringgit as the export prices of logs and plywood are quoted in US dollars, while operating costs are mostly denominated in ringgit.
It said that this was significant as the timber business had low profit margins of 3%-5%. The firm estimated that every 1% depreciation of the ringgit would boost Ta Ann’s FY14 timber earnings by 8%-9%.
Ta Ann’s oil palm estates total about 35,345ha with most of its plantations located in the central region of Sarawak. Analysts forecast CPO prices to average at RM2,700 per tonne in 2014, 14% higher than in 2013 and this will boost Ta Ann’s bottomline.
Affin Research, in a recent note, expected the company’s oil palm division to contribute more than 70% of group pre-tax profit in FY13-FY15.
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