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RAM Ratings reaffirms Cahya Mata Sarawak
Published on 25 Jan 2019.
RAM Ratings has reaffirmed the AA3/Stable rating of Cahya Mata Sarawak Berhad’s (CMS or the Group) RM2.0 billion Islamic MTN Programme (2017/2037) as well as the Group’s AA3/Stable/P1 corporate credit ratings. The reaffirmation is premised on CMS’s strong business profile as the sole cement manufacturer and one of the key construction material providers in Sarawak (the State). CMS is well poised to benefit from the State’s more development-centric budget for 2019, together with the ongoing development of the Sarawak Corridor of Renewable Energy (SCORE) and the Pan Borneo Highway project.
CMS’s integrated operations and diversified sources of income through its various strategic investments help reduce overall business risk and reduce the cyclical impact of the construction sector. The Group’s profit before tax jumped 25.5% y-o-y in 9M FY Dec 2018, boosted by the better performance of its construction-related businesses and a higher share of associate profits from its strategic investments such as OM Materials (Sarawak) Sdn Bhd (OMS) and Sacofa Sdn Bhd. Moving forward, as Sarawak’s main provider of construction materials, CMS is well poised to benefit from the anticipated pick-up in construction activities over the medium term.
The Group’s financial profile has remained strong while it has been able to consistently maintain its net-cash position despite having drawn down RM500 million of its IMTN programme in May 2017. Even with a heavier debt load, CMS’s gearing ratio stayed commendable at 0.22 times as at end-September 2018 (end-September 2017: 0.26 times); its funds from operation debt coverage (FFODC) also recorded a slight improvement to 0.37 times in 9M FY Dec 2018 (9M FY Dec 2017: 0.32 times). Nonetheless, its funding requirements may increase with the acquisition of a higher stake in Malaysian Phosphate Additives (Sarawak) Sdn Bhd. This may exert pressure on the Group’s credit metrics over the medium term due to the large debt funding requirements of the SCORE project.
CMS is subject to geographical concentration risk as all its business operations are clustered within Sarawak, with minimal diversification outside the State, thereby rendering it highly dependent on Sarawak’s economic well-being. The Group’s commodity-based investments in the SCORE also exposes it to execution risk and volatile commodity prices. That said, CMS’s involvement in the SCORE is seen as a growth driver that can sustain its earnings in the long run while reducing its dependence on Sarawak, as the output of such investments is meant for the global market.
Being substantially owned by the family of Sarawak’s governor, Tun Haji Abdul Taib Mahmud (the former chief minister of Sarawak), the Group is exposed to some degree of political risk. Members of his family hold a collective 32.37% stake in CMS. Any change in the State’s political landscape could have an adverse impact on CMS. That said, we derive comfort from the Group’s already entrenched market position and its crucial role in Sarawak’s overall economic development.
Established in 1974, CMS is a Sarawak-based conglomerate listed on Bursa Malaysia. Having started off as a cement manufacturer, its current core businesses include the trading of construction materials, construction and road maintenance, and property development. CMS is also directly involved in the Samalaju Industrial Park (SIP), one of the five growth nodes of the SCORE initiative, via the provision of lodging services to workers at SIP and its investment in a ferrosilicon and manganese smelter project as well as a phosphate plant at the Park. In addition, the Group is engaged in the development of a new township next to SIP. CMS holds a 50% non-controlling interest in Sacofa, a provider of telecommunications infrastructure.
Analytical contact
Yip Chee Meng
(603) 7628 1187
cmyip@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
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