UOB KayHian: Drop in CMS shares amid allegations against shareholder is chance to buy

Malaysia one-ringgit noteMalaysia one-ringgit note

The more than 50 percent drop in shares of CMS is an opportunity to buy despite concerns about the new Malaysian government’s policies, UOB KayHian said in a note on Tuesday.

“The weakness is temporary as investors reacted negatively to calls to reopen bribery cases related to controlling shareholder Taib Mahmud, and the new government’s review of mega projects as well as the renewal of road maintenance concessions,” the note said.

Taib Mahmud reportedly previously denied wrongdoing.

But the brokerage was sticking with a Buy call, saying CMS, or Cahya Mata Sarawak, has been professionally run by non-family members since 2006 and Taib Mahmud’s family has been reducing its stake in the company, taking it to around 33 percent currently, from around 40 percent at the end of 2016. CMS has become a “highly institutionalized stock,” it said.

UOB KayHian said it was cautious on CMS getting an extension of road-maintenance contracts, with contracts due to expire in June, amid the new government’s review of contract renewals, but it added that management remained confident on the renewal due to its inventory of equipment and as a major employer of Sarawakians.

But the brokerage added that other segments should offset any weakness from the road maintenance division.

However, it still cut its target price to 4.00 ringgit from 4.65 ringgit after assigning a 25 percent discount to its sum-of-the-parts valuation amid rising uncertainties and the de-rating of the construction sector.

The stock ended Tuesday up 7.29 percent at 2.06 ringgit.