The ratings agency also reaffirmed the Sarawak-based cement manufacturer’s AA3/P1 corporate credit ratings and the AA3 ratings of its RM2 billion Islamic MTN Programme (2017/2037).
It noted the group’s new phosphates manufacturing division (Cahya Mata Phosphates) started commissioning production and will transition to commercial operations by mid-2023. The division is anticipated to become a significant earnings contributor from fiscal 2024, it said in a press release today.
“This will diversify the group’s current construction-focused business profile and further strengthen its financial profile, with segmental contribution potentially reaching half of the group’s earnings,” it said, adding it sees Cahya Mata to be a direct beneficiary of a rise in Sarawak’s construction activity.
It added the ratings may be upgraded if Cahya Mata Phosphates can demonstrate stable operational and financial performances.
“That said, we are cognisant of the challenges in ramping up production. Any significant deviation from Cahya Mata’s plans and realisation of expected earnings of the phosphates operation may warrant a reversion of the outlook to stable.
“For now, it has adopted a cautious approach, focusing first on stabilising operations before commercialising the remaining two furnaces with the help of industry experts as advisors. The segment is expected to post narrower losses this year, which is not seen to materially impact its robust financial profile,” said RAM Ratings.
Focus on infrastructure development
It said the ratings continue to be backed by Cahya Mata’s sturdy foothold in Sarawak’s cement industry, directly benefiting from the state’s continued focus on infrastructure development.
A rebound in the state’s construction activity supported a 23.9% uptick in the group’s FY2022 top line to RM1.01 billion.
“Its strong financial profile is envisaged to further strengthen over the next three years, with a widening net cash position and operating cash flow debt coverage of above 0.3 times.”
However, it noted that Cahya Mata’s heavy reliance on Sarawak’s economy, a lack of geographical diversification and the group’s cyclical core businesses are ratings moderators.
“The rising prominence of Cahya Mata Phosphates’ earnings will reduce the exposure to these factors,” it added.
The group also anticipates the modest contributions from recently acquired businesses in drilling fluids and drilling waste management to become more meaningful over the longer term.
In 2021, Cahya Mata revamped its board and senior management composition following governance gaps identified.
“The board took steps to strengthen and continues to improve internal controls and risk management,” RAM Ratings said.
Cahya Mata’s portfolio spans over 35 companies involved in cement manufacturing, phosphates manufacturing, oil tools, green technology, construction materials, trading, construction, road maintenance, property development, financial services, telco infrastructure and other services.
The group’s net profit for the fourth quarter ended Dec 31, 2022 (Q4 FY2022) rose 27.6% to RM32.11 million from RM25.15 million a year ago.
The stronger earnings performance was lifted by recognition of gain on disposal of associates of RM89.02 million, as well as higher revenue for the quarter.
The stronger quarterly result also pushed its annual profit in FY2022 to RM298.06 million, up 45.95% from RM204.22 million in FY2021. Annual revenue also increased 23.9% to RM1.01 billion from RM814.55 million previously.
The group returned to a net cash position of RM427.55 million for FY2022 from a net debt position of RM352.83 million for FY2021.
Its shares rose 1 sen to RM1.13 today, giving it a market capitalisation of RM1.21 billion.