IT was no secret that Cahya Mata Sarawak Bhd is engulfed in a corporate governance issue but at the end of the day, that concern can be overshadowed by its healthy balance sheet and earnings visibility.
Recall that the Sarawakian conglomerate which is closely linked to the family of Sarawak Governor Tun Abdul Taib Mahmud was recently embroiled in the suspension of its group CFO and conflict of interest allegation against its deputy chairman with Cahya Mata claimed to be unrelated.
“While the share price’s subsequent >16% fall may provide an attractive buying opportunity, the stock is likely to be sidelined until there’s clarity on the outcome of the ongoing internal investigations which could bring implication on the company’s future governance,” justified UOB Kay Hian Research analyst Noor Hazmy Hazin in a results review.
Yet again, Cahya Mata reported a higher core net profit of RM52.5 mil (+225.4% quarter-on-quarter [qoq]; 137.8% year-on-year [yoy]) on 1Q FY2021 revenue of RM202.1 mil (-2.3% qoq, +6.7% yoy) after adjusting an unrealised loss of forex and investment securities of RM13.7 mil as well as excluding gain on disposal of Kenanga Investment Bank Bhd shares of RM28.5m and land of RM12.7 mil.
The core net profit is above the research house’s full-year estimate, accounting for 35% and 30% of consensus full-year estimates.
All-in-all, UOB Kay Hian Research retained its “buy” call on Cahya Mata albeit with a lower target price of RM2.38 (from RM2.60 previously).
“We ascribed a 35% discount to our sum-of-part (SOP)-based valuation to reflect the governance risk factor, implying 12 times FY2022F PER (price-to-earnings ratio),” justified the research house.
“Valuations look appealing as share price has declined 36.9% year-to-date (YTD). We continue to like Cahya Mata for its healthy balance sheet and earnings visibility.”
MIDF Research, too, retained Cahya Mata’s “buy” rating but revised downward the company’s target price to RM2.20 (previously RM2.80) as the research house pegged a lower PER of 11.3 times (previously 14.2 times) to the group’s FY2022 earnings per share (EPS) of 19.5 sen.
“We ascribe a lower PER as a result of the resurgent of COVId-19 cases in East Malaysia and current unfavourable condition surrounding its corporate governance due to the ongoing independent investigation of previous years’ losses by its construction arm allegedly involving its Group CFO who is currently on leave of absence,” opined analyst Khoo Zhen Ye.
“Nonetheless, the higher PER than current (8.8 times) is still supported by the group’s resilient business mix and its dominant market share of construction material supply in Sarawak amid the construction upcycle in East Malaysia.”
At 3.24pm Cahya Mata was up 3 sen or 1.91% to RM1.60 with 4.4 million shares traded, thus valuing the company at RM1.72 bil. – May 27, 2021
