RAM reaffirms Lafarge Malaysia ratings on strong business and financial profile

RAM reaffirms Lafarge Malaysia ratings on strong business and financial profile
Published: 05 June 2015


RAM Rating Services has reaffirmed the ratings of Lafarge Malaysia Bhd’s debt notes based on the strong business and financial profile.

The ratings agency had on Thursday reaffirmed the AA2/Stable/P1 ratings of the group’s MYR350m Islamic securities programme (2010/2017).

“The ratings are premised on Lafarge Malaysia’s strong business and financial profile. The group is the leading producer of cement in Malaysia, whose annual production capacity of almost 13Mt accounts for about 40 per cent of total production capacity in Peninsular Malaysia,” it said.

RAM Ratings expected Lafarge Malaysia to expand its market share further after its impending merger with Holcim Malaysia Sdn Bhd and also the completion of the expansion at its Rawang and Kanthan plant by 2016.

It notes the cement producer is able to export excess production overseas through its access to jetty in Langkawi, and by leveraging on the global distribution network of its parent, Lafarge SA.

Superior financial profile
The ratings agency pointed out Lafarge Malaysia’s financial profile stayed superior as at end-December 2014. The net cash position and strong debt-coverage metrics were underpinned by the group’s strong cashflow-generating ability.

Its operating profit before depreciation, interest and tax margin remained commendable at 19.2 per cent (FY December 2013: 23.3 per cent).

This was in spite of disruptions in its production process as well as a more challenging operating environment which impacted the group’s performance in FY Dec 2014. This overall solid financial profile was maintained as at end-March 2015.

RAM Ratings cautioned the ratings remain moderated by the group’s exposure to volatile input prices. Another factor was the cycle of the construction and property sectors on which demand for cement is dependent.

“We are also cautious of the risk of pricing pressure on cement should supply of the commodity outpace growth in demand in the near term, as new capacity comes onstream,” notes Thong Mun Wai, RAM’s Head of Agribusiness, Real Estate and Construction Ratings.