Malaysia’s cement industry downgraded to ’neutral’ after elections

Malaysia’s cement industry downgraded to ’neutral’ after elections
Published: 14 March 2008

CIMB Research said on Friday it has downgraded the Malaysian cement industry to "neutral" from "overweight" as several big-ticket infrastructure projects could be delayed following the unexpected outcome in the general elections.

In its worst-ever electoral showing over the weekend, the ruling coalition lost its two-thirds majority in parliament for the first time in 40 years and unprecedentedly conceded five states to the opposition.

The ruling Barisan Nasional (BN) coalition lost the states of Selangor, Penang, Perak and Kedah, in addition to Kelantan, which was held by the opposition before the elections.

The stunning defeat of BN has raised doubts surrounding the government’s key economic policies and put a number of high-profile government-initiated construction projects into question.

"We have turned cautious on the construction sector in light of the new political environment. Inevitably, the building material sector will also be negatively impacted," CIMB said in a research note.

Five construction projects worth a combined 35.9 billion ringgit in Selangor and Penang could be delayed after the two states fell into the hands of the opposition, the research house said.

"Within the building material sector, cement would be a bigger casualty than steel as demand for cement is primarily domestic driven," CIMB said.

"Against the backdrop of slower domestic demand, delays in the implementation of the automated pricing mechanism and rising costs, we are also turning cautious on the cement sector," it said.

The automated pricing mechanism for the cement industry was mooted last year when the sector was hit by surging costs.

The research house is cutting LafargeMalayan Cement, one of the largest cement product manufacturers in Malaysia, to "neutral" from "outperform" following an earnings cut.