Cahya Mata Sarawak Bhd’s exit from the banking sector three years ago left the entity with construction as its mainstay. Be that as it may, when it comes to Sarawak-based stocks, the company is high on the radar.
With the family of Sarawak Chief Minister Tan Sri Taib Mahmud backing it, more often than not, Cahya Mata has been regarded as a powerful and wealthy company. Taib’s children and his late wife Lejla Taib together owned more than 42% of Cahya Mata, based on its 2008 annual report.
Taib’s older son Datuk Seri Mahmud Abu Bekir Taib is deputy chairman and owns 8.92% of the company while younger son Datuk Seri Sulaiman Abdul Rahman Taib was chairman until 2008 and holds an 8.94% stake.
Cahya Mata’s track record speaks volume about its success rate in bidding for contracts.
According to its filings with Bursa Malaysia, Cahya Mata and its subsidiaries have won over RM1 billion worth of projects from the Sarawak and federal governments since 2004.
Its dominance in the production of cement and other building materials in the state further strengthens its position as a construction firm there.
But when it comes to grandeur, none of the projects it secured in the past can compete with its latest gem — the RM7 billion aluminium smelter in Similajau, Sarawak. Cahya Mata has a 40% stake in the venture while Rio Tinto Alcan holds the remaining 60%.
Upping cash pile to fund smelterGiven the scale of the smelter project in Similajau, Cahya Mata needs to build its financial strength, which is where the recent disposal of UBG Bhd comes into play.
Cahya Mata is selling its portion — held by units Concordance Holdings and PPES Works — for RM465.5 million cash to PetroSaudi International Ltd, which made headlines recently with its US$2.5 billion joint venture with 1Malaysia Development Bhd (1MDB).
The disposal of the UBG stake will more than double Cahya Mata’s coffers, which stood at RM277 million as of Sept 30, 2009.
In its filing with Bursa Malaysia, Cahya Mata says the disposal will enable the group to use the proceeds for investment opportunities that offer “higher yield and returns”, like the Similajau smelter.
It is also perhaps timely for Cahya Mata to unlock its investment in UBG, which has not secured any significant contracts of late.
The price tag of RM465.5 million or RM2.50 per share represents a price-earnings ratio of 20 times over consensus 2010 earnings estimates and a price per net tangible assets of 1.53 times over UBG’s NTA per share as at Sept 30, 2009.
The RM2.50 represents a 5% premium to UBG’s last share price close of RM2.39.
The takeover of UBG by PetroSaudi and Abu Dhabi-Kuwait-Malaysia Investment Corp (ADKM) adds yet another interesting twist to the Cahya Mata growth story.
To recap, Cahya Mata exited the lucrative banking business after its subsidiary Utama Banking Group Bhd (now UBG) sold its stake in the RHB banking group to the Employees Provident Fund for over RM2 billion.
Afte the sale, UBG rewarded its shareholders with a RM2 per share capital repayment.
With the remaining cash, UBG, which was without a core business, bought Putrajaya Perdana Bhd (PPB) and Loh & Loh Corp Bhd. It also took over the entire equity interest in CMS Roads Sdn Bhd and CMS Pavement Tech Sdn Bhd.
Simultaneously, ADKM’s subsidiary Majestic Masterpiece Sdn Bhd, which owned PPB and Loh & Loh, bought into UBG to participate in the enlarged infrastructure group. This was how Cahya Mata ended up with a 37.2% stake in UBG while ADKM held 52.62%.
Assuming the disposal of UBG to PetroSaudi is completed later this year, Cahya Mata plans to strengthen and build on its other core businesses, including the manufacture of cement, civil engineering, road construction, quarry operations, financial services and property development.
Cahya Mata group managing director Richard Curtis tells The Edge that the company is gearing its operations to meet the growing demand for construction materials and ride the pick-up in jobs in the Sarawak Corrider of Renewable Energy (SCORE).
“We are keeping close tabs on the state’s plans and development needs and will assess investment opportunities in our core businesses at the appropriate time to ensure adequate supply of construction materials to meet demand,” he says.
He says the company is also growing its business of asset management and stockbroking — an area in the financial sector that has proved lucrative during an economic upturn.
Cahya Mata recently sold asset management subsidiaries CMS Capital Sdn Bhd, Sarawak Securities Sdn Bhd and Sarawak Securities Futures Sdn Bhd to Kenanga Holdings Bhd, which were paid for with Kenanga shares.
This resulted in Cahya Mata becoming a major shareholder in Kenanga Holdings, with 25.07% equity interest.
Also noteworthy is Cahya Mata’s associate KKB Engineering Bhd, which has established itself as a leading steel engineering and fabrication company in Sarawak.
“KKB’s inclusion also improves synergy in Cahya Mata’s stable of construction materials, making the group a one-stop source for construction and construction materials in Sarawak,” says Curtis.
This article appeared in Corporate page of The Edge Malaysia, Issue 794, Feb 22 – 28, 2010