Cahya Mata seen as catalyst for infrastructure spending


  • Analyst Reports
  • Thursday, 02 Jul 2020

“CMS is in a stronger position to reap the benefits of higher infrastructure spending, given its financial strength versus its peers in Sarawak, particularly after the pandemic. We have maintained a ‘buy’ call with a higher target price of RM2 post our earnings adjustment, ’’ UOB Kay Hian said.

PETALING JAYA: Even though Cahya Mata Sarawak Bhd’s (CMS) core net profit for the first quarter (Q1) fell by more than half, analysts believe the company should be a key catalyst for the state’s infrastructure spending.

UOB Kay Hian Research said earnings for 2020 will be impacted by Covid-19. But it expects infrastructure spending to be robust, as the Sarawak state election is due soon. The state has budgeted over RM22bil for infrastructure projects.

The projects include the second trunk road, coastal road upgrades, water grid programmes, rural electrification and telecommunications towers.

“CMS is in a stronger position to reap the benefits of higher infrastructure spending, given its financial strength versus its peers in Sarawak, particularly after the pandemic. We have maintained a ‘buy’ call with a higher target price of RM2.00 post our earnings adjustment, ’’ UOB Kay Hian said.

It said CMS reported a Q1 core net profit of RM25.3mil, which has been adjusted for an unrealised foreign-exchange loss of RM8.2mil on a RM282.5mil revenue.

MIDF Research also believes CMS has brighter prospects and is a likely beneficiary of the infrastructure projects. However, it remains cautious on the overall outlook for the construction sector with the slow progress in construction activities

It has maintained its “buy’’ call, but has adjusted its target price to RM1.70 a share from RM2.21, and revised down its financial year 2021 (FY21) earnings.

On its cement unit, CMS cautioned that the first-half (H1) profit is projected to be half of 2019 with weak demand. It may incur some maintenance costs to re-mobilise its clinker plant.

Maybank IB Research expects a pick-up in all of CMS’ operations from H2. Medium-term earnings will be supported by its RM1.24bil construction order book with a target replenishment of RM200mil in H2.

“Our earnings cuts are broad-based. We have also lowered our dividend per share forecast which implies a 25% dividend payout ratio for FY20. CMS’ dividend policy is a minimum 30% of net profit, subject to a minimum of two sen per share and other considerations, ’’ Maybank IB said.

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