CMS’ 1QFY20 earnings miss expectations, analysts cut forecasts
KUCHING: Cahya Mata Sarawak Bhd’s ( CMS) first quarter of financial year 2020 (1QFY20) earnings missed expectations, which has led to analysts cutting forecasts for financial year 20202022 (FY20-FY22).
CMS’ 1QFY20 core net profit of RM17.3 million came in below AmInvestment Bank Bhd’s (AmInvestment Bank) expectations, at only 16 per cent of the research firm’s fullyear forecast and 14 per cent of full-year consensus estimates respectively.
“We believe the key variance against our forecast came from weaker-than- expected performance across the board due to the movement control order ( MCO),” AmInvestment Bank said.
The group’s 1QFY20 core earnings of RM282.5 million also trailed both the research arm of MIDF Amanah Investment Bank Bhd’s ( MIDF Research) and consensus estimates, representing only eight per cent and 11 per cent of full year forecasts.
MIDF Research attributed the underperformance to lower contribution from all the divisions except for the cement division.
“Despite our sanguine outlook on the prospects of the construction sector in Sarawak, we are prompted to adjust our earnings forecasts downward after factoring in weaker performance for all divisions except for the cement division in review quarter,” the research arm said.
Hence, MIDF Research revised down its earnings forecasts for FY20 and FY21 by 50.1 per cent and 23.2 per cent respectively.
AmInvestment Bank also cut its FY20-22F net profit forecast by 50 per cent, 29 per cent and 22 per cent respectively.
This led to the research firm’s FY20-22F core net profit to now amount to RM99.2 million, RM152.9 million and RM170.5 million, respectively.
Overall, AmInvestment Bank remained 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,” the research firm opined.
“In Sarawak, while the state could step in to fill the gap with the RM11 billion state reservesfuelled infrastructure projects comprising the Coastal Road, Second Trunk Road and 11 mega bridges (ahead of the state election which must be held by September 2021), the rollout of work packages from these highly publicised projects seems to have hit a snag after the initial hype.
“We are mindful of the potential threat to the market dominance of existing players in the construction and building material sector in Sarawak on an altered political landscape.
“Increased competition could put a dent on CMS’ prospects of winning new construction jobs and concessions, as well as sustaining high margins for its construction, road maintenance and cement businesses.”
Meanwhile, MIDF Research anticipated brighter prospects for CMS as the research arm believed that the group is a likely beneficiary of the RM11 billion major infrastructure projects in Sarawak which include the Coastal Road, Second Trunk Road, and 11 bridges given its track record as one of the biggest infrastructure players in East Malaysia.
“However, we remain cautious on the overall outlook for the construction sector on the back of slow progress in construction activities.”