THE prolonged COVID-19 pandemic outbreak coupled with the unresolved corporate governance (CG) issues will continue to hamper Cahya Mata Sarawak Bhd’s outlook at least in the near term.
This has prompted UOB Kay Hian Research to downgrade the conglomerate to “hold” (from “buy” previously) with its target price slashed by 41% to RM1.40 (from RM2.38 previously).
“Although we still like its long-term prospects as the prime beneficiary of the upcoming state election and economic reopening, we believe investors are likely to stay on the sidelines for the time being pending results of the ongoing investigation,” justified analyst Noor Hazmy Noor Hazin in a company update.
At the moment, the conglomerate is bugged by the constant changing of guards at board level (two directors resigned in June); CG issues (its deputy group chairman Datuk Seri Mahmud Abu Bekir Taib cleared of a conflict-of-interest allegation); the return of the Sarawak Governor’s family in the affairs of Cahya Mata; and the temporary suspension of the group’s CFO (until end-July).
It is worthwhile noticing that the group CFO’s suspension is to facilitate investigations relating to losses in 2016-2020 at PPES Works (Sarawak) Sdn Bhd, a 49%-owned unit of Cahya Mata that owns 70% of a joint venture with Bina Puri Holdings Bhd for the RM1.36 bil Pan Borneo Highway Phase 1 Work Package Contract (WPC) 06.
“These major moves that happened in a span of only two months have caused Cahya Mata’s share price to plummet over 40% year-to-date (YTD),” observed UOB Kay Hian Research.
“We believe the drop in share price is a sign of disappointment from the market as Cahya Mata contradicted the direction that it planned to take originally.”
In this regard, the research house pointed to Cahya Mata having indicated in 2019 that its founding family was committed to take a step back from the company given the major management restructuring at the time.
“However, with these recent changes, it seems that the family still wields influence in CMS and this may affect its environmental, social, and governance (ESG) rating accordingly,” noted UOB Kay Hian Research.
While the CG affairs may not affect Cahya Mata’s operations, the research house further expects 2H 2021 to remain challenging due to the imposition of movement control order (MCO 3.0) where the company’s core divisions are restricted to utilising only about 50% of their workforce.
“Hence, we expect lower earnings ahead before seeing a more meaningful recovery in 2022,” projected the research house.
At 11.54am, Cahya Mata was down 4 sen or 3.2% to RM1.21 with 4.38 million shares traded, thus valuing the company at RM1.3 bil. – July 8, 2021
