KUCHING – Analysts remain positive on Cahya Mata Sarawak Bhd (Cahya Mata Sarawak) despite its subsidiary Cahya Mata Phosphates Industries’ (CMPI) arbitration process with state utilities company Syarikat Sesco Bhd (Sesco) still ongoing.
This was said by CMPI’s parent group Cahya Mata Sarawak in a press statement on Monday, issued to provide updates on the arbitration action between Sesco and CMPI, formerly known as Malaysia Phosphate Additives Sarawak Sdn Bhd.
While the phosphate plant in Samalaju has been fully commissioned with all the four furnaces fired up in December 2022, it has yet to commence commercialisation as CMPI is still awaiting approvals for necessary licences for it to begin selling.
Cahya Mata Sarawak’s management noted that it was stated clearly in the power purchase agreement (PPA) that the higher tariff would only kick in upon commercialisation, which is when it starts selling products, which has yet to happen to date.
“It currently has about 10,000 drums of phosphorus in its inventory which cannot be sold yet unless it acquires all the required licences,” observed analysts with MIDF Amanah Investment Bank Bhd (MIDF Research).
“Sesco billed CMS RM266 million for cumulative electricity consumption shortfall and payment security shortfall as of December 31, 2022.
“Sesco had on May 11, 2023, issued a default notice that the PPA with Cahya Mata Phosphates was deemed terminated and that it would terminate the electricity supply to its plant, a decision which was then reversed though Sesco maintained that the PPA was terminated.
“Cahya Mata Sarawak’s management maintained that the PPA is still on foot. We note that it is still business as usual at the phosphate plant with no issues on the electricity supply.”
MIDF Research maintained its positive outlook for Cahya Mata Sarawak, pending further developments on the arbitration of the dispute.
“We remain optimistic that it will be able to be resolved amicably, for the betterment of Sarawak’s economy.
“The group’s integrated phosphate complex in Samalaju is the only one of its kind in Malaysia whereas in the region, there have been no new entrants, at least over the past decade, in a market dominated by Vietnamese and Kazakh producers.
“Cahya Mata Sarawak’s plant has an annual capacity of 57,600 metric tonnes or 288,000 drums. Management’s initial target for commercialisation was mid-2023, though we do not discount the possibility of delays due to the ongoing dispute.
“On another note, we remain sanguine on CMSB’s earnings outlook in FY23, as the expected improvement in construction job flows would benefit the group in terms of cement supply, construction projects and road maintenance jobs. We reiterate our buy recommendation on Cahya Mata Sarawak.”
Maybank Investment Bank Bhd said it believed commercial sense should prevail in this case on electricity supply.
“Management affirms electricity is still being supplied to the phosphate complex. While the risk of electricity supply cut remains, we think that commercial sense among the parties in dispute will prevail considering the size and economic benefits of this phosphate project,” it said in its own note.
“The RMY266 million contingent liability, if it crystallises during or post arbitration proceedings, will impact Cahya Mata Sarawak’ profit and loss, balance sheet and cash balance, equivalent to 26 sen per share.” – Borneo Post Online, May 16, 2023
