One of the biggest beneficiaries is Cahaya Mata Sarawak Bhd (CMSB), a company linked to the former Chief Minister of Sarawak. The group will benefit from contracts to supply building materials (such as cement) and from performing construction work under the project.
Last weekend, we read that contractors performing work on this project is not required to source their cement from CMSB. While the cost advantage still favors sourcing your cement needs from CMSB, this little leeway strengthens the hands of the contractors and could well lead to a small reduction in the profit margin for CMSB.
Today we saw the share price of CMSB breaking below its strong psychological support at RM5.00. Is the market anticipating further relaxation in the procurement practices for this highway project; thus reducing CMSB's otherwise bumper profit?
From the chart below, we can see that CMSB has been trading in a sideways manner since October last year when the stock broke its uptrend line, SS. Below the RM5.00 support, the stock will have support at RM4.70. If the RM4.70 level is also taken out, the stock could see at least a medium-term downtrend. This is a rather strange development in the light of the upcoming election in Sarawak. Then again, politic in Malaysia is full of surprises.
Chart: CMSB's weekly chart as at Mar 2, 2016 (Source: Tradesignum)
Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, CMSB.
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