CMS believes that the extension is a prudent step as it allows the state government to develop a comprehensive road management and maintenance contracting strategy for its entire 30,000 km of state roads out of which only 6,000km is being maintained by CMS under the existing contract.
KUCHING: The announcement of Cahya Mata Sarawak Bhd’s (CMS) state road maintenance concession being extended by the Sarawak state government for another year should lift the sentiment on the stock, which has been under selling pressure since the 14th General Election.
To note, the extension is for up to June 30, 2019 based on the same terms and conditions. The one-year extension contract is worth RM180 million.
CMS believes that the extension is a prudent step as it allows the state government to develop a comprehensive road management and maintenance contracting strategy for its entire 30,000 km of state roads out of which only 6,000km is being maintained by CMS under the existing contract.
“This comes as no surprise to us as we were confident that CMS would be able to secure the renewal due to its proven track record, cost advantages as major capex in plant and machinery has already been made by the group over the years; and no clear competitors to take on this project,” said AllianceDBS Research Sdn Bhd (AllianceDBS Research).
“We reiterate our view that the change of political landscape at the federal government level will have no immediate impact on CMS particularly on the road maintenance concession.
“This is due to the continuity in the Sarawak state government which does not need to call for a state election until 2021.”
This positive news should lift the sentiment on the stock, AllianceDBS Research said, which has been under selling pressure since the 14th general election at about -40 per cent.
“As such, we reiterate our buy call on CMS, with our target price at RM4 per share.”