The well-connected stocks include Naim Holdings Bhd, Cahya Mata Sarawak Bhd (CMS), KKB Engineering Bhd and Sarawak Cables Bhd (SCB).
KUALA LUMPUR: Cahya Mata Sarawak Bhd
’s (CMS) key operating segments are expected to recover in subsequent quarters but its 25%-owned OM Materials (Sarawak) Sdn Bhd will still be a drag on earnings, according to AllianceDBS Research.
“While we believe most of CMS key operating segments should recover in subsequent quarters given the rollout of Pan Borneo Highway projects, the continued weakness at 25%-owned OM Sarawak will still be a drag on earnings as well as sentiment of the stock.
“As such, we do not foresee a re-rating in CMS’s share price unless there is a turnaround in OM Sarawak from improving ferrosilicon prices,” AllianceDBS said.
It explained that due to depressed ferrosilicon prices, OM Sarawak production volume had been very low with only 40% utilisation rate (only six out of 16 furnaces are in operation).
To mitigate this, OM Sarawak is planning to convert six of its furnaces to manganese alloy production which is seeing better demand. To strengthen its financial position, CMS has also recently subscribed to RM110mil convertible preference shares (CPS) issued by OM Sarawak.
The research house has trimmed its FY16-18 forecast earnings per share on CMS by 37-50% after adjusting for lower sales volume and higher production costs.
More importantly, it now forecast RM42mil share of net losses from OM Sarawak, compared to a share of profit of RM52mil previously.
“Given the weak performance of OM Sarawak, we ascribe no value to this associate for now and apply a 10% holding company discount to our sum-of-part (SOP)-based valuation. Together with the earnings cut, our SOP-based target price for CMS is now slashed to RM3.30. Maintain ‘hold’ recommendation,”
Limited time offer:
Just RM5 per month.
