Upbeat on CMS as Bintulu MPAS complex to open soon

2022-08-14 13:37:58 By : Ms. Jenny Jia

The remaining three furnaces will be fully commissioned by December 2022.

KUCHING (July 27): Analysts are upbeat as Cahya Mata Sarawak Bhd (CMS) will be firing up its first furnace at its Malaysian Phosphate Additives Sarawak (MPAS) complex in Bintulu on August 8.

This is much-awaited progress that has been delayed for two years due to Covid-induced bottlenecks from lockdowns to supply chain disruptions and unavailability of foreign workers, said MIDF Amanah Investment Bank bhd (MIDF Research).

The remaining three furnaces will be fully commissioned by December 2022.

CMS holds 60 per cent of MPAS via its wholly-owned subsidiary Samalaju Industries Sdn Bhd. It is the first integrated phosphate complex in the country.

“The first phase will consist of three plants with an annual capacity of 48,000 metric tonnes (MT) of yellow phosphorus, 75,000 MT of technical phosphoric acid and 60,000 MT of food grade phosphoric acid,” MIDF Research recapped.

“The total investment for the first phase is about RM898 million, funded via shareholder’s equity and long-term loans. The entire complex, when completed, will have an annual production capacity of 500,000MT of food, feed and fertiliser phosphate additives, 100,000MT of ammonia and 900,000MT of coke.

“Management guided that based on conservative pricing, it is estimating that the plant will be cash flow neutral by financial year 2023 (FY23) and be in the black by FY24.

“Management is optimistic about the demand it is seeing so far and the interest garnered for the second phase and potential downstream activities.”

In terms of environmental concerns, there will be zero gas emissions from the MPAS project according to CMS, on top of having 99.9 per cent of its water recycled and no water discharge.

“We are reassured of management’s direction moving forward as it places heightened emphasis on driving CMSB to be on track with the best practices of ESG. It is currently pushing for its ESG rating to be certified by an independent third party.”

In other corporate updates, as per its announcement on July 21, CMS has filed lawsuits against a former executive director and five others for breaches of fiduciary duties to CMS, related to the MPAS development.

Based on independent advice from its legal counsel, the board approved for the filing of the suits, based on the findings by KMPG in a special review that found gaps in the contract management and bidding processes and lack of monitoring on hedging transactions, leading to losses for the project due to adverse currency exchange movements; lack of due diligence and stakeholder management on JV partner’s risks of a project and for not adhering to reporting structures by management to the board.

“The impact has already been accounted for in the financial statements of affected years, which management guided to be about RM251 million, including impairment,” MIDF Research said.

“The legal suits, according to management, are part of CMS’ governance process to be forthright about the findings. It has also hired senior personnel for the positions of internal audit chief and group legal counsel to ensure higher standards of internal audit and governance.”

“We maintain our BUY recommendation on CMS. We are positive on the upcoming commissioning of the first phase of the integrated phosphate complex, which is expected to open more doors for CMS.

“We also like the counter for its strong net cash position of RM100.6 million, which is estimated to strengthen to RM627.2 million post disposal of its stakes in OM Sarawak and OM Samalaju. This augurs well for CMSB for upcoming investments or acquisitions.”