CAHYA Mata Sarawak Bhd can expect improved stock sentiment in the days ahead with independent consultant KPMG Management & Risk Consulting Sdn Bhd having completed its independent review of the company.
Moreover, the management guided that the group is strengthening its corporate governance (CG) by introducing new measures such as setting up an independent group risk division and investment committee to address KPMG’s key findings, according to TA Securities Research.
“KPMG has finally completed the independent review on the financial management of certain investments and projects,” analyst Chan Mun Chun pointed out in a results review. “The realised losses incurred had already been recognised in the previous financial years.”
The following are the key findings in KPMG’s special review report on Cahya Mata:
- There were gaps in the contract management and bidding processes contributing to a project’s losses;
- Lack of monitoring by the associate’s board on the hedging transactions of a certain project which ended in losses due to adverse currency exchange movements;
- Lack of due diligence and stakeholder management on the joint venture partners’ risks of a project; and
- The reporting structures by management to the board were not adhered to and complied within a project.
Excluding an exceptional net gain amounting to RM31.1 mil, TA Securities Research said Cahya Mata’s 9M FY2021 core profit of RM148 mil came in above expectations, accounting for 96.0% and 84.3% of the research house’s and consensus’ full-year forecast respectively.
The positive variance was mainly due to stronger-than-expected results from associates, especially from its 25%-owned-associate, OM Material Sarawak Sdn Bhd (OMS).
After revising the company’s earnings forecasts, the research house revised upward Cahya Mata’s sums-of-part (SOP) target price to RM1.76 (from RM1.68 previously) while retaining the company’s “buy” rating.
Meanwhile, Maybank IB Research upgraded Cahya Mata’s rating to “buy” (from “hold” previously) with a target price of RM1.68 (from RM1.48 previously) given the company’s 9M FY2021 core net profit came in at 99%/86% of the research house’s/consensus estimates.
“Positively too, measures are being put in place to strengthen its risk management framework following findings by KPMG,” opined head of research Wong Chew Hann.
“Among the key findings of KPMG’s special review on certain projects that led to the suspension of Cahya Mata’s group CFO (chief financial officer) on May 5 are that of gaps in contract management and bidding processes, and lack of due diligence and stakeholder management,” noted Maybank IB Research.
“Measures are being put in place to address these weaknesses; all related realised losses had been accounted for. Moving forward, restoring confidence in governance is vital, in our view.”
At 11am, Cahya Mata was up 5 sen or 3.57% to RM1.45 with 9.98 million shares traded, thus valuing the company at RM1.56 bil. – Nov 25, 2021
Photo credit: The Star
