KUALA LUMPUR (Feb 12): AmInvestment Bank Bhd downgraded its call on Cahya Mata Sarawak Bhd (CMSB) shares to "Underweight" from "Buy" and lowered the stock's target price to RM2.48 from RM3.91, as recovery in the share price might have translated to downside risk premium for the stock.
As at 10:33am today, CMSB shares were traded unchanged at RM3.05.
In a note, AmInvestment said today that the research house had however raised its CMSB net profit forecast by 20% for financial year ended Dec 31, 2018 (FY18) to reflect better performance from the group’s 25%-owned associate OM Materials, but had cut projections for FY19 and FY20 by 5% and 14% respectively due to weakened prospects for the construction and building materials sectors in East Malaysia.
"Having recovered by a whopping 59% to RM3.05 from the post-14th general election (GE14) low of RM1.92 on 21 May 2018, we believe the stock’s risk premium could now have overshot to the downside (vs. overshooting to the upside previously).
"We are turning cautious on CMSB due to the cutback in public infrastructure spending nationwide, including East Malaysia. We are also mindful of the change in the competitive landscape for the construction and building materials sectors in East Malaysia, following the change in the political scene post-GE14 in 2018, coupled with the Sarawak state election by Sept 2021. Increased competition will put a dent on CMSB’s prospects of winning new construction jobs, securing extensions for its road maintenance concessions, as well as sustaining high margins for its construction, road maintenance and cement businesses," AmInvestment said.