KUALA LUMPUR (June 19): News on Cahya Mata Sarawak Bhd's unit CMS Roads Sdn Bhd securing a one-year contract extension worth some RM180 million for maintenance of Sarawak state roads, should lift sentiment on the stock. AllianceDBS Research Sdn Bhd said Cahya Mata Sarawak has a proven track record in Sarawak road maintenance.

AllianceDBS analyst Abdul Azim Muhthar noted that the positive news should lift the sentiment on Cahya Mata Sarawak shares, which has been under selling pressure since Malaysia's 14th general election (GE14). 

"As such, we reiterate our BUY call on Cahya Mata Sarawak, with our SOP (sum-of-parts)-derived TP (target price) at RM4.00 — which implies 16.7x FY18F PE and 1.7x P/BV.

"We reiterate our view that the change of political landscape at the federal government level will have no immediate impact on Cahya Mata Sarawak, particularly on the road maintenance concession. This is due to the continuity in the Sarawak state government, which does not need to call for a state election until 2021," Abdul Azim said.

At Bursa Malaysia today, Cahya Mata Sarawak shares were 18 sen lower at RM2.35 at 3:31pm.

TA Securities Holdings Bhd analyst Chan Mun Chun said TA maintained its Cahya Mata Sarawak earnings forecasts for financial years ending Dec 31, 2018 (FY18) to 2020 (FY20), as TA had earlier factored in an extension in road maintenance contract into TA's Cahya Mata Sarawak's earnings model.

Chan however said TA is mindful of a potential open tender for Sarawak road management and maintenance contracts. “In our opinion, the Sarawak State Government may explore an open tender format for procurement of state roads management and maintenance contracts, which may result in lower profit margin.

"Hence, we trim the target PE multiple for (Cahya Mata Sarawak's) construction and road maintenance division from 14x to 10x, and reduce the target price from RM4.10 to RM3.80, based on SOP valuation. Maintain Buy," Chan said.