Shares of Cahya Mata Sarawak, a Malaysia-listed construction and maintenance services provider, experienced a significant drop following the company’s announcement of a sharp decline in its third-quarter net profit. The stock fell by as much as 7.2% and was currently 6.3% lower at 1.04 ringgit, marking its second-largest daily loss in two years.
According to the company, its net profit for the quarter plummeted to MYR9.98 million ($2.1 million), a notable decrease from the MYR154.4 million reported during the same period last year. The decline was primarily driven by lower contributions from its associates and the absence of one-off gains.
Analysts have responded to this weak performance by adjusting their target price for the stock. Maybank Investment Bank, for example, has reduced Cahya Mata’s target price from MYR1.47 to MYR1.30, as it anticipates continued challenges in the phosphate division impacting earnings. The company’s phosphate complex had its electricity supply terminated in July due to a dispute with the Malaysia Sarawak state utility firm. The uncertainty surrounding the resumption of power supply for commercial operations is expected to weigh on Cahya Mata’s financials, potentially resulting in a loss of at least MYR10 million for each month of delay.
Despite these concerns, Maybank maintains its buy rating for Cahya Mata, highlighting the company as “a liquid proxy to higher construction activities in Sarawak.” MIDF Research also revised its target price downwards to MYR1.32 from MYR1.50, and adjusted its earnings forecasts for 2023-2025 by 24%, 19%, and 23%, respectively.
While these challenges persist, there is optimism regarding Cahya Mata’s future outlook. The company stands to benefit from increased construction job flows in Sarawak, as it is the sole cement producer in the state, according to MIDF. This positive market position may contribute to the company’s recovery in the long term.