AmInvestment keeps 'underweight' on Cahya Mata Sarawak amid cautious sector outlook

TheStar Mon, Jul 06, 2020 08:54am - 3 years View Original


KUALA LUMPUR: AmInvestment Bank research is keeping its underweight call on CAHYA MATA SARAWAK BHD, even as its operations contiue to normalise post-movement control order.

The research house said that while Sarawak could support the construction sector with the RM11bil state reserves-fuelled infrastructure projects comprising the Coastal Road, Second Trunk Road and 11 mega bridges, the rollout of work packages seems to have hit a snag.

"We remain cautious on the outlook for the construction sector. The government has very limited room for fiscal manoeuvre given the still elevated national debt and reduced petroleum revenues," said AmInvestment, which has a fair value of RM1.42 on the stock.

According to the research house, the group's cement unit continued to be weighed down by margin compression due to its heavy dependence on heavy clinkers, where prices have stayed elevated.

Cahya Mata Sarawak continues to depend on clinker impots from Southeast Asian and Peninsular Malaysia.

AmInvestment estimates that about 65% of its clinker requirements are sourced internally and it is ramping up its in-house clinker production.

"Our forecasts have assumed a gradual recovery in the unit’s margins, assuming the ramp-up in production is to proceed as planned," it said.

Meanwhile, AmInvestment assumes Cahya Mata Sarawak's 25%-owned associate OM Materials (Sarawak) to only break even in FY20.

"Better prices and sales volumes in 2H should help the unit to recoup losses incurred in 1H due to low prices and sales volume amidst the Covid-19 pandemic," it said.

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