MIDF Research are initiating coverage of Lafarge Malayan Cement (LMC) at MYR6.91 with neutral rating and target price of MYR6.80.
LMC is the country’s largest cement producer with 46% market share in terms of capacity. LMC’s annual rated capacity clinker production currently stands at 8.2Mt against the total industry’s clinker capacity of 17.8Mt.
LMC is also the largest listed cement company on Bursa Malaysia with MYR5.6bn in market capitalisation, ahead of YTL Cement Bhd
As the largest cement player in Malaysia with more than 40% market share, MIDF believe LMC’s cement demand augurs well next year driven by mega projects under the Economic Transformation Programme ETP, namely MyRapid Transit and KL Financial District in Greater Kuala Lumpur and Iskandar Malaysia, Johor, infrastructure projects and other big projects. Apart from that, the ongoing projects under the 10th Malaysia Plan are expected to continue to drive the overall cement demand.
As a multinational company, LMC has a wide distribution network around the world and it is well connected with its parent company, Lafarge of France. MIDF see this as an advantage against its peers as the group can take advantage of any pickup in construction activities in other countries.
Thanks to its current strong operating cash flow, LMC’s financials are very clean with a net cash balance of MYR127m in FY10. MIDF believe LMC will continue to be in a net cash position since the group keeps maintaining its working capital requirement through improvement in production efficiency and minimal capital expenditure.