CAHYA Mata Sarawak Bhd (CMS) represents one of the best proxies to an impending pick-up in infrastructure flows with an upcoming state election, according to AllianceDBS Research.
“We think the stock represents one of the best proxies to an impending pick-up in infrastructure flows with an upcoming state election, but would like to see some
evidence of a pick-up in earnings momentum and construction flows before turning more positive,” said AllianceDBS analyst Chong Tjen-San.
This follows CMS’ results for the first half of its 2020 financial year, where it saw a net profit of RM34 mil, down 59% year-on-year (yoy).
“This was within our and consensus estimates, as CMS’ second quarter of 2020 was impacted by the full brunt of the movement control order (MCO) and the still poor showing of OM Sarawak due to slumping ferrosilicon and manganese prices,” said Chong.
However, the analyst also warned that, despite the expectation of a sequential improvement, CMS is likely to show weakness for its 3Q20 as well, due to the closure of its Mambung grinding and clinker plant due to Covid-19 infections in mid-July. However, this has since been resolved and the plant has reopened.
The opening of steel mills in China will also entail a gradual recovery in demand for OM Sarawak, according to Chong.
“It has since invested AUD20 mil to install a sinter plant which will further lower manganese alloy production cost while it is also proceeding with Phase 2. Presently, the prices of both ferrosilicon and manganese have not seen a meaningful rebound in 2Q20 and also for
July and August,” said Chong.
AllianceDBS maintains a hold call on CMS, with an unchanged target price of RM1.65.
At the end of the trading day, CMS’ shares were last done at RM1.51, up a sen, with 5.7 million shares traded. – Aug 27, 2020
