Thursday, January 20

RAM reaffirms CMS’ ratings at AA3/P1

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KUCHING: RAM Ratings has reaffirmed Cahya Mata Sarawak Bhd’s (CMS) AA3/Stable/P1 corporate credit ratings.

The ratings reflect CMS’s dominant market position as the sole cement manufacturer in Sarawak.

Backed by its strong bargaining power and vertically integrated operations, the Group’s cement operations are highly profitable.

“As one of the key construction material suppliers in Sarawak, the Group is well poised to benefit from the State’s booming construction sector, which is largely driven by the development of the Sarawak Corridor of Renewable Energy (SCORE).

“RAM views CMS’ somewhat diversified sources of income favourably.

Apart from cement production, the Group derives a sizeable income from its construction material and trading as well as construction and road maintenance divisions.

To a smaller extent, it enjoys contributions from its investment in the Samalaju Industrial Park (SIP) and property divisions.” Going forward, CMS will add the provision of telecommunication infrastructure and production of ferrosilicon and manganese alloys to its stable.

In RAM’s view, apart from contributing positively to its earnings, the Group’s income diversity makes it less vulnerable to the underperformance of any one key division.

“The ratings are also supported by the Group’s superior financial profile.

As at end-December 2014, its borrowings stayed flat at around RM100 million, which translated into a strong gearing level of 0.05 times.

“With a cash hoard of close to RM830 million, CMS remained in a comfortable net cash position.

The low debt level, coupled with a healthy cash-generating profile, resulted in the Group’s funds from operations debt coverage ratio coming in at 2.57 times in FY Dec 2014 (FY Dec 2013: 2.72 times).

“Moving forward, notwithstanding the use of borrowings to fund the recently announced acquisition of Sacofa Sdn Bhd, we expect CMS’s balance sheet and debt-protection metrics to stay healthy.” Moderating the ratings is the Group’s vulnerability to geographical concentration risk.

Given that its entire business operation is based in Sarawak, CMS’s performance is heavily dependent on economic conditions in the State.

The Group’s performance is expected to soften should Sarawak’s economy experience a slowdown or in the event of setbacks in the development of the SCORE.

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.