IMPRESSED with Cahya Mata Sarawak Bhd’s “positive surprise” from a strong contribution from an associate which more than offset the group’s weak cement earnings, Maybank IB Research has reiterated a tactical buy on the Sarawak-based conglomerate with a higher target price of RM1.84 (from RM1.68 previously).
The average 10% hike in cement price with effect from Feb 17 (last hike was in 2016) would help offset rising production cost (FY2021: +9%), thus restoring margins, according to the research house.
“The management expects cement demand to pick up on resumption of works on ongoing projects,” head of research Wong Chew Hann pointed out in a recent results review.
“Outstanding construction order book (ex-road maintenance) was RM67 mil as of Dec 31, 2021; Cahya Mata is making every effort in its bids for new infra and road maintenance projects.”
According to Maybank IB Research, the group’s 4Q FY2021 headline/core net profit was RM24 mil/RM69 mil, bringing its 12-month total to RM203 mil/RM219 mil. In fact, Cahya Mata’s 12-month core profit was 15%/10% above the research house’s/street forecasts.
RHB Research which is optimistic of the group’s prospects to benefit from the sustained roll-out of state development projects, too, retained its “buy” rating on Cahya Mata but lower sums-of-part (SOP) target price to RM1.60 (from RM1.70 previously).
While it believes that the 10% cement price hike is timely with the group’s core business segments expected to benefit from resumption of major infrastructure and telco projects in FY2022, RHB Research noted that Cahya Mata’s quest to restore investors’ confidence is imperative but may take some time.
Having completed its internal investigation into the financial management of its previous projects, Cahya Mata has introduced a number of measures which include (i) the creation of a new independent group risk division; (ii) initiation of operational improvements; and (iii) recruitment of additional senior management to strengthen its governance controls.
Against the backdrop of Cahya Mata standing a good chance to replenish its order book with the mega projects planned for East Malaysia, MIDF Research maintained its “buy” recommendation on the company with an unchanged target price of RM1.62.
“We postulate that the group’s revenue and earnings prospects remain strong for FY2022, especially for the cement division which would benefit from a pick-up in demand alongside the growth in construction and business activities,” projected the research house.
Examples of major infrastructure projects in Sarawak which Cahya Mata has expertise in include the Pan Borneo Highway, Sarawak Coastal Road Project, Sarawak-Sabah Link Road, Sarawak Water Supply Master Plan and Water Grid, and the Sarawak Petrochemical Hub.
“The group’s order book for its construction division has dwindled to RM670 mil as of Dec 31, 2021 but the group has noted that it is focusing on bids for new projects related to infrastructure works,” added MIDF Research.
At the close of yesterday’s (Feb 28) trading, Cahya Mata was dowm 2 sen or 1.64% to RM1.20 with 2.79 million shares traded, thus valuing the company at RM1.29 bil. – March 1, 2022
Pic credit: The Borneo Post
