RAM Reaffirms AA3/Stable/P1 rating of CMS’ RM2 bil Islamic MTN programme
KUALA LUMPUR (Jan 27): RAM Rating Services Bhd (RAM Ratings) has reaffirmed the AA3/Stable/P1 corporate credit ratings of Cahya Mata Sarawak Berhad’s (CMS) RM2 billion Islamic MTN Programme (2017/2037).
In a statement today, RAM Ratings said although earnings and debt coverage metrics are expected to weaken for the immediate term, they are envisaged to gradually improve as CMS strengthens its market positioning and benefit from the continued roll out of more infrastructure projects in the State.
It said CMS has sustained top line of RM1.71 billion in Financial Year (FY) Dec 2019 and pre-tax earnings took a dive to RM247.9 million (FY Dec 2018: RM1.68 billion and RM372.32 million, respectively) due to higher costs in key divisions and near halving of associates’ contribution.
The reaffirmation premised on CMS’s strong business profile as the sole cement manufacturer and among the key construction material providers in Sarawak.
“Amid Covid-19 challenges in nine months of FY Dec 2020, revenue and pre-tax profit shrank a respective 31.7% and 43% to RM872.52 million and RM131.53 million.
“As at end-September 2020, CMS’ debts continued to climb to RM888.28 million (end-December 2019: RM803.49 million), largely to fund its investments into a subsidiary’s phosphate manufacturing plant,” it said.
However, RAM Ratings said CMS’ balance sheet remains sturdy with gearing and net gearing ratios of 0.28 and 0.12 times, respectively.
“Given weaker earnings for the latest period, annualised funds from operations debt coverage came in at 0.19 times (FY Dec 2019: 0.26 times),” it said.
It said the rising competition for construction related jobs has led CMS to form a stronger collaboration with Sarawak Economic Development Corporation (SEDC).
“On Oct 2, 2020, CMS divested two per cent interest in key joint venture entities involved in quarrying, production of asphalt, road maintenance and construction, leading to the state agency gaining 51% control of the entities. Over the medium term, CMS’ earnings are expected to gradually improve.
“We envisage the Group’s cashflow debt coverage will remain supportive of the ratings; operating cashflow debt coverage (including dividends) is estimated to improve to about 0.17 times in the immediate two years, while the same measure on a net debt basis is likely to stay above 0.3 times,” it said.
It anticipates CMS’ balance sheet to remain robust.
“Other than CMS’ strong foothold in Sarawak’s cement industry and its healthy financial profile, the group’s ratings continue to be upheld by the State’s upbeat construction sector, with Federal and State Budgets allocating RM10.8 billion for development in 2021 (2020: RM11 billion),” it noted.
Source: TheEdgeMarkets
