Resilient earnings and high dividends have kept YTL Cement Bhd shareholders smiling in the last five years, in the face of plunging cement prices and industry-wide losses. Between 2001 and 2005, YTL Cement paid 45 sen in dividends and saw its share price more than quadruple in value.
YTL Cement is the lowest cost cement producer in the country and demand from its sister construction and property development companies, say analysts, are the main reasons for the company’s steady showing.
UOB-Kay Hian, in its February research report, notes that YTL Cement outperforms its listed peers with an average return on equity of 18.8 per cent over the last five years, compared against LaFarge Malayan Cement’s 2.7 per cent and Cement Industry of Malaysia’s (Cima) two per cent.
For its financial year ended June 30, 2005, YTL Cement made RM68.6 million in net profits, a 19.4 per cent fall from the previous year. Lafarge Malaysia made RM29.8 million in net profit for 2005, less than half the RM82.8m it earned in 2004. Meanwhile, Cima showed net losses of RM21.7m last year.
YTL Cement also seized its opportunity to grow cheaply during the industry’s troubled times. It scooped up Perak-Hanjoong Simen over the last two years and became the second-largest cement producer in the country. These buys place it in a stronger position to gain from the sector’s recovery.
Government spending, say analysts, is set to revive the construction sector, and cement players along with it. “We expect YTL Cement’s three-year earnings CAGR [compound annual growth rate] at 34.6 per cent, on the back of recovery in cement prices, rising demand and cost savings from rationalisation of operations after… [acquiring] Perak-Hanjoong in FY2005,” states UOB-Kay Hian.
Cement prices are also on the mend. After being bashed down in a five-month price war — RM100/t (below the average cost of production) last May — prices rebounded to RM180/t the following month. Some analysts believes that local cement prices will jump to RM192/t this year. UOB, meanwhile, expects prices to only hit RM192 next year and RM198 in 2008.
Last year, YTL Cement acquired a 21 per cent stake in ailing Jurong Cement Ltd, Singapore, for RM19.4m. Indonesia is another prospect, since the YTL group has a power plant there and has expressed its interest in the country’s infrastructure projects.
A potential blip on the horizon, however, is rising competition on home ground. In March, French cement giant Vicat Group caused a stir among local players when it put in a bid for a “controlling equity interest” in Cima’s subsidiary companies. No decision has been announced, but it is understood that the Cima management is mulling selling a smaller stake. The Vicat offer lapses on June 1.
Cima is currently the third largest player in the Malaysian cement market, with a 16 per cent share. Lafarge Malayan Cement leads the market with 44 per cent, while YTL Cement is second with 24 per cent.