KUALA LUMPUR (July 22): AmInvestment Bank Research has maintained its “Underweight” rating on Cahya Mata Sarawak Bhd (CMS) at RM2.99 with a lower fair value (FV) of RM2.45 (from RM2.51) and said it cut its net profit forecast for FY19F by 18%, and FY20–21F by 2% each.
In a note today, the research house said its new FV is based on 10x revised FY20F EPS, in line with house benchmark forward target P/E of 10x for large-cap construction/building materials stocks.
“During a recent meeting, CMS highlighted to us two potential headwinds to FY19F earnings: (1) competition in the state road maintenance space; and (2) weaker performance from 25%-owned OM Materials (Samalaju) Sdn Bhd due to sustained soft selling prices of its end products,” it said.
Meanwhile, the research house said the outlook for OM Materials is expected to remain weak in FY19F, weighed down by the weak selling prices of its key end product ferrosilicon (FeSi), on the double-whammy of rising supply and slowing demand in China amidst the US-China trade war.
“We understand that FeSi prices eased by a further 8% to US$1,080/tonne in 2QFY19, as compared with US$1,170/tonne in 1QFY19, and its production cost of US$1,000/tonne.
“FeSi prices averaged at US$2,100/tonne in FY18. We have reflected these two potential headwinds in our forecasts,” it said.