DESPITE being shrouded in governance issues, near-term prospect looks promising for Cahya Mata Sarawak with the group’s revenue and earnings looking healthy in anticipation of the resumption of construction and business activities.
Moreover, MIDF Research observed that the group’s business operations were not much affected during the current movement control order (MCO 3.0) as they are deemed as essential services for the construction and business activities in Sabah and Sarawak regions.
“The group’s prospect is also well-supported by its healthy outstanding order book of about RM1.03 bil for its construction and road maintenance division which will provide earnings visibility over the next two to three years,” justified analyst Ummar Fitri in a results review.
MIDF Research has deemed Cahya Mata’s 6M FY2021 normalised earnings as within its expectations after having rebounded strongly by +149% year-on-year (yoy) to RM88.6 mil after excluding a disposal gain of RM28.5 mil worth of shares in Kenanga Investment Bank, land gain disposal (RM12.7 mil) and 1Q FY2021 forex loss (RM9 mil).
The research house further expects Chaya Mata’s businesses which span across the construction supply chain to continue being a major beneficiary from potential mega infrastructure projects roll-out in Sarawak and Sabah.
They include the Sarawak-Sabah Link Road, Coastal Road, the Trans-Borneo Highway project, the Sarawak Water Supply Master Plan and Water Grid and the Sarawak Petrochemical Hub.
All-in-all, MIDF Research maintained its “buy” rating on Cahya Mata with a lower target price of RM1.62 (from RM2.20 previously).
Meanwhile, Maybank IB Research issued a tactical upgrade to “buy” (from “hold” previously) on Cahya Mata albeit with a lower target price of RM1.48 (from RM1.73 previously).
Despite having moved into National Recovery Plan (NRP) Phase 2 from July 14, the research house is wary that the near-term outlook for economic activities in Sarawak remains challenging due to rising new COVID-19 cases.
“This may impact the progress of construction projects, thus the demand for cement and construction materials. At its cement operations, the management is cautious on rising freight cost affecting imported clinker cost,” opined head of research Wong Chew Hann.
“The management is also cautious on (associate company) Malaysian Phosphate Additives (Sarawak) Sdn Bhd where construction is behind schedule.”
Elsewhere, Maybank IB Research pointed out that KPMG has completed its reports on the financial management of certain investments and contracts that had earlier led to the suspension of Cahya Mata’s group chief financial officer (CFO) from May 5.
“The legal investigations are however still ongoing and Cahya Mata expects to announce the outcome by end-October. The employment contract of this GCFO had lapsed on Aug 31,” added the research house.
At 9.23am, Cahya Mata was down 2 sen or 1.59% to RM1.24 with 2.67 million shares traded, thus valuing the company at RM1.33 bil. – Sept 1, 2021
