Published on 19 Apr 2023.
RAM Ratings has revised the outlook on Cahya Mata Sarawak Berhad’s (Cahya Mata or the Group) long-term ratings from stable to positive in view of the Group’s improving business and financial profiles. Cahya Mata’s AA3/P1 corporate credit ratings and the AA3 ratings of its RM2.0 bil Islamic MTN Programme (2017/2037) have been affirmed.
Cahya Mata’s new phosphates manufacturing division (Cahya Mata Phosphates) started commissioning production and will transition to commercial operations by mid-2023. The division is anticipated to become a significant earnings contributor from fiscal 2024. This will diversify the Group’s current construction-focused business profile and further strengthen its financial profile, with segmental contribution potentially reaching half of the Group’s earnings. We also view the Group to be a direct beneficiary of a rise in Sarawak’s construction activity. The ratings may be upgraded if Cahya Mata Phosphates can demonstrate stable operational and financial performances. That said, we are cognisant of the challenges in ramping up production. Any significant deviation from Cahya Mata’s plans and realisation of expected earnings of the phosphates operation may warrant a reversion of the outlook to stable.
For now, Cahya Mata has adopted a cautious approach, focusing first on stabilising operations before commercialising the remaining two furnaces with the help of industry experts as advisors. The segment is expected to post narrower losses this year, which is not seen to materially impact its robust financial profile.
The ratings continue to be backed by Cahya Mata’s sturdy foothold in Sarawak’s cement industry, directly benefiting from the state’s continued focus on infrastructure development. A rebound in the state’s construction activity supported a 23.9% uptick in the Group’s FY Dec 2022 top line to RM1.01 bil. Its strong financial profile is envisaged to further strengthen over the next three years, with a widening net cash position and operating cashflow debt coverage of above 0.3 times.
Cahya Mata’s heavy reliance on Sarawak’s economy, a lack of geographical diversification and the Group’s cyclical core businesses are ratings moderators. The rising prominence of Cahya Mata Phosphates’ earnings will reduce the exposure to these factors. The Group also anticipates the modest contributions from recently acquired businesses in drilling fluids and drilling waste management to become more meaningful over the longer term. In 2021, Cahya Mata revamped its board and senior management composition following governance gaps identified. The board took steps to strengthen and continues to improve internal controls and risk management.
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Thong Mun Wai
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Ratings on Cahya Mata Sarawak Berhad