CMS struggles to rebound as sentiment remains weak

by NUR HAZIQAH A MALEK / pic credit: cmsb.my

MANAGEMENT and board changes at Cahya Mata Sarawak Bhd (CMS) have yet to translate to confidence in investors while analysts stand wary of governance risks pending the outcome of the independent investigation relating to governance issues.

Rakuten Trade Research VP Thong Pak Leng said the selling pressure on the stock is due to investors due to the poor market sentiment and the company’s independent review rather than not having confidence in the appointments made by the company last week.

“It seems the overall market sentiment is rather weak. Perhaps investors will regain confidence in the company once it has solved the internal matters first,” he told The Malaysian Reserve.

The reappointment of Datuk Seri Sulaiman Abdul Rahman Abdul Taib as MD has not reversed the selling from institutional investors like the Employees Provident Fund (EPF) or Lembaga Tabung Haji (TH).

EPF continued to cut its stake in CMS, selling some 328,300 shares on July 12 which took its stake down to 59.34 million shares from 99.76 million shares on May 27, 2021.

TH last sold some 200,000 shares on June 30 to take its holdings down to 83 million shares.

From a technical perspective, CMS’ price chart suggests the stock has found support at RM1.05. The stock closed at RM1.10 yesterday after hitting a high of RM1.13 in intraday trade.

“The stock is still in a downtrend unless it can move above the RM1.50 level. The immediate resistance is about RM1.30. The small rebound now is just a minor correction from the selling pressure over the past four months when the stock was priced at about RM2.45,” a chartist with a local brokerage said.

With no new report on the counter despite the boardroom changes, analysts have generally maintained their stand on the counter.

Maybank Investment Bank Bhd (Maybank IB) retains its earnings forecast for CMS but continues to monitor the pandemic situation impact on its investments and operations.

CMS first quarter 2021 (1Q21) net profit, which is 34% of Maybank IB’s financial year 2021 (FY21) earnings core net profit, provides some buffer.

CMS longer term plans are to raise its clinker plant production to 800,000 metric tonnes per annum by 2023 and start operating a fourth or fifth quarry in 3Q21 or 4Q22.

CMS target is to grow its orderbook to RM2 billion in two years, while its outstanding orderbook was RM1.03 billion as of March 31, and expectations are for larger contract wins only post the state election, the last Maybank IB report stated.

The group’s Malaysian Phosphate Additives facility’s construction and commissioning has been delayed as foreign specialist workers are unable to enter Sarawak due to travel restrictions, the investment bank report added.

Maybank IB has a ‘Hold’ call on CMS with a target price of RM1.73. MIDF Amanah Investment Bank Bhd, in its last report on the company, opined CMS’ business operations were not much affected during Movement Control Order 3.0 as it was deemed as essential services for the construction and business activities in Sabah and Sarawak.

Its orderbook for construction and road maintenance division which will provide earnings visibility over the next two to three years and CMS’ construction supply chain will continue to be a major beneficiary from the potential mega infra projects roll-out in both states.

MIDF has a target price of RM2.20 on CMS priced on 11.3 times its price to earnings multiple as earnings estimates were revised downward for FY21 and FY22 by 10% and 13.2% to RM189.4 million and RM208.4 million respectively due to weaker progress billing and delay of project roll-out due to Covid-19 imposed restrictions.