Friday 29 Mar 2024
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KUALA LUMPUR (Feb 26): MIDF Research has raised its target price (TP) for Cahya Mata Sarawak Bhd to RM2.80 (from RM1.70) and revised its financial year ending Dec 31, 2021 (FY21) and FY22 earnings forecasts to RM210.4 million and RM240.2 million respectively on higher revenue assumptions, mainly stemming from the company's core traditional business segments and higher share of profits from associates OM Materials (Sarawak) Sdn Bhd and Kenanga Investment Bank Bhd.

However, the research house maintained its "buy" rating of the stock and said the higher TP is based on a higher price-earnings ratio (PER) of 14.2 times (from 11.9 times) to the group’s FY21 earnings per share (EPS) of 19.7 sen.

“We believe the higher PER is justified due to the group’s resilient business mix and its dominant market share of construction material supply in Sarawak amid the construction upcycle in East Malaysia,” said MIDF in a statement today, adding that the new PER represents the group’s five-year historical average.

According to MIDF, the conglomerate’s fourth quarter ended Dec 31, 2020 (4QFY20) normalised earnings rebounded strongly to RM96.5 million (up 131.8% quarter-on-quarter [q-o-q]), mainly driven by the prompt resumption of its core business operations.

However, the group’s FY20 results decreased to RM99.7 million (down 37.5% year-on-year [y-o-y]), which came in slightly below house and consensus expectations as it accounted for 85.2% and 88.7% of respective estimates.

Nonetheless, the research house opined that Cahya Mata Sarawak’s cement and construction materials and trading division would post a better financial performance in FY21 on the resumption of operations and construction activities moving forward as its operations remain unaffected by the second movement control order (MCO 2.0).

As for its construction and road maintenance division, the research house anticipates that it will continue to derive stable recurring income from its road concession, which currently involves the maintenance of approximately 3,343km of state roads.

Moreover, MIDF pointed out that the group’s prospects are also well supported by its healthy outstanding order book of about RM1.03 billion for its construction and road maintenance division, which will provide earnings visibility over the next two to three years.

“Meanwhile, we are of the view that Cahya Mata Sarawak could continue to be a beneficiary of potential mega infrastructure project roll-outs in the states of Sarawak and Sabah (i.e. the Sarawak-Sabah Link Road, Coastal Road, Trans-Borneo Highway project, Sarawak Water Supply Master Plan and Water Grid, Sarawak Petrochemical Hub) in the foreseeable term.

“In addition, we believe the development expenditure of RM9.6 billion allocated for the states of Sabah and Sarawak under Budget 2021 and the commitment of the Sarawak state government of an additional RM9.8 billion budget for the state alone with the majority of funds earmarked for developments would bode well with the group’s order book replenishment rate moving forward,” it added.

At the time of writing today, Cahya Mata Sarawak was down nine sen or 3.72% at RM2.33, with a market capitalisation of RM2.5 billion.

Edited ByLam Jian Wyn
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