FW: RAM Ratings reaffirms Cahya Mata Sarawak's IMTN rating

 

Published on 04 Jan 2018.

RAM Ratings has reaffirmed the AA3/Stable rating of Cahya Mata Sarawak Berhad’s (CMS or the Group) RM2.0 billion Islamic Medium-Term Notes Programme (2017/2037) as well as the AA3/Stable/P1 corporate credit ratings of the Group. 

The reaffirmation of the ratings is based on our opinion that CMS’s credit metrics will remain commensurate with the ratings going forward. Also supporting the ratings is the Group’s strong business profile as Sarawak’s sole cement manufacturer. CMS’s somewhat diversified sources of income are also viewed favourably, albeit mostly related to the construction sector and confined to Sarawak. Backed by a strong market position and vertically integrated operations, the Group is expected to benefit from the development of the Sarawak Corridor of Renewable Energy (SCORE), the State’s ambitious digital economic transformation plans and the Pan Borneo Highway project, which is anticipated to pick up next year.

The ratings continue to reflect the Group’s healthy financial profile. Despite a slowdown in the State’s construction sector, CMS’s profit before tax for 9M FY Dec 2017 had risen 44% y-o-y. This was supported by a reduction in the cost of production of cement, the completion of its property project in Rivervale, as well as higher share of profits from associates. 

Despite the drawdown of RM500 million from the IMTN programme, CMS’s financial profile stayed robust with a gearing ratio of 0.26 times as at end-September 2017. Its large cash reserves of RM739 million, meanwhile, had kept it in net-cash position as at the same date. Following the drawdown, CMS’s annualised FFO debt cover for 9M FY 2017 came in lower, albeit within our expectations, at 0.33 times. In the absence of large capex requirements and with stronger cashflow generation going forward, the Group is envisaged to maintain a healthy FFO debt coverage of above 0.30 times and gearing of below 0.40 times.

Moderating the ratings is the geographical concentration risk that the Group faces. As its entire business operation is based in Sarawak, CMS’s performance is dependent on economic conditions in the State. Moreover, as the Group’s products are targeted at the property and construction industries, it also has to contend with the cyclical nature of these sectors. Additionally, CMS’s investments in commodity processing ventures at Samalaju are exposed to execution risk and volatile commodity prices.

Elsewhere, being substantially owned by the family of Sarawak’s Yang di-Pertua Negeri, Tun Abdul Taib Mahmud (formerly the chief minister of Sarawak), the Group faces some degree of political risk. Any change in the State’s political landscape could have an adverse impact on the Group. That said, we draw comfort from the Group’s already-entrenched market position and its important role in Sarawak’s overall economic development. As at 21 December 2017, members of Abdul Taib’s family held a 33.8%-stake in CMS.

Established in 1974, CMS is a Sarawak-based conglomerate listed on Bursa Malaysia. Starting off purely as a cement manufacturer, its core businesses now include trading in construction materials, construction and road maintenance, and to a smaller extent, property development. CMS is directly involved in the Samalaju Industrial Park (SIP) by virtue of the Group’s provision of lodging services to workers at SIP and its investments in a ferrosilicon and manganese smelter project as well as a phosphate plant at the Park. The Group is also engaged in the development of a new township adjoining SIP. CMS further holds a 50% non-controlling interest in Sacofa Sdn Bhd, a telecommunications infrastructure provider.

 

Analytical contact
Kathleen Por
(603) 7628 1015
kathleen@ram.com.my

Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my