KUCHING: RAM Ratings has recently upgraded the outlook on Cahya Mata Sarawak Berhad’s (Cahya Mata or the Group) long-term ratings from stable to positive, citing the group’s improving business and financial profiles.
According to the rating agency on Wednesday, Cahya Mata’s new phosphates manufacturing division (Cahya Mata Phosphates) has started commissioning production and is set to transition to commercial operations by mid-2023. This division is expected to become a significant earnings contributor from fiscal 2024 onwards.
“The addition of Cahya Mata Phosphates will not only diversify the Group’s current construction-focused business profile but also further strengthen its financial profile, with segmental contribution potentially reaching half of the group’s earnings,” it said.
As Sarawak’s construction activity rises, the Group is well-positioned to benefit directly. The ratings may be upgraded if Cahya Mata Phosphates can demonstrate stable operational and financial performances. However, the rating agency acknowledged the challenges in ramping up production.
According to RAM Ratings, any significant deviation from Cahya Mata’s plans and the realisation of expected earnings of the phosphates operation could result in a reversion of the outlook to stable.
For the time being, Cahya Mata is adopting a cautious approach by first focusing on stabilising operations before commercialising the remaining two furnaces with the assistance of industry experts as advisors.
“The segment is expected to post narrower losses this year, which should not materially impact the Group’s robust financial profile,” noted RAM Ratings.
Cahya Mata’s sturdy foothold in Sarawak’s cement industry, directly benefiting from the state’s continued focus on infrastructure development, continues to support the ratings. A rebound in the state’s construction activity led to a 23.9 per cent uptick in the Group’s Fiscal Year (FY) Dec 2022 top line to RM1.01 billion.
“Its strong financial profile is expected to further strengthen over the next three years, with a widening net cash position and operating cashflow debt coverage of above 0.3 times,” said RAM Ratings.
Despite Cahya Mata’s heavy reliance on Sarawak’s economy, a lack of geographical diversification, and the Group’s cyclical core businesses acting as ratings moderators, the rising prominence of Cahya Mata Phosphates’ earnings will help reduce exposure to these factors.
The Group, RAM Ratings said, also anticipated modest contributions from recently acquired businesses in drilling fluids and drilling waste management to become more meaningful over the longer term.
