CMS shares fall following downgrade
HSL also hit initially after analysts downgrade stock, closes unchanged
PETALING JAYA: Shares in construction-related firms Cahya Mata Sarawak Bhd (CMS) and Hock Seng Lee Bhd (HSL) fell after several analysts downgraded the stocks.
CMS closed four sen lower yesterday to RM3.01, while HSL’s share price fell 2.78% during intra-day trade before closing unchanged at RM1.44.
AmInvestment Research had downgraded CMS shares to “underweight” from “buy” and had cut its target price significantly to RM2.48 from RM3.91 earlier.
“We are turning cautious on CMS due to the cutback in public infrastructure spending nationwide, including in Sabah and Sarawak,” it said in a report yesterday.
It pointed out that since the 14th general election (GE14), the landscape of the construction and building materials sectors in Sabah and Sarawak had changed.
“Increased competition will put a dent on CMS’ prospects of winning new construction jobs, securing extensions for its road maintenance concessions, as well as sustaining high margins for its construction, road maintenance and cement businesses,” AmInvest said.
It said that shares of CMS had recovered more than 59% to RM3.05 after GE14 from a low of RM1.92 on May 21, 2018
“We believe the stock’s risk premium could now have overshot to the downside,” it said.
AmInvest has cut its earnings forecast on CMS for FY19-FY20 by 5% and 14%, respectively, on weakened prospects for the construction and building materials sectors in East Malaysia.
It pointed out that the target price was based on 10 times revised FY19 earnings per share, which is in line with its benchmark valuation for large-cap construction and building material stocks.
But, for FY18, AmInvest raised its earnings forecast by 20%.
Meanwhile, Kenanga Research and MIDF Research downgraded HSL due to the recent surge of the counter’s share price.
MIDF said that the recent increase in HSL’s price was driven by the recent contracts secured and the positive prospects of Sarawak’s infrastructure construction outlook.
“Our target price is maintained at RM1.54 as the latest jobs award fall within our replenishment assumptions.
“Furthermore, we downgrade our recommendation to ‘neutral’ as the total expected return dropped to less than 10% due to recent share price increase,” it said.
HSL recently bagged two work packages with a combined value of RM54mil for earthworks and common facilities and operator’s residence for the Balingian coal-fired power plant project in Mukah, Sarawak.
Kenanga said it was “neutral” on the contract as it falls within the research house’s FY19 orderbook replenishment of RM400mil.
“We believe the recent rally in share price since mid-Jan is mainly sentiment-driven given that tenders for major infrastructure projects are still in early stages.
“Amidst intensifying competition, we prefer to wait for more concrete developments and hence, believe our downgrade is fair,” it said in a report.
It had downgraded HSL to “underperform” from “market perform” with an unchanged target price of RM1.30 based on 10 times FY19 PE.