Tough operating climate for Lafarge Malaysia Bhd

Kenanga Research, the research arm of Kenanga Investment Bank, has rated the outlook for Lafarge Malaysia Bhd as neutral, because of the country's weak property market coupled with the current oversupply situation.

While Lafarge Malaysia has two cement plants in Rewang, Selangor, and Kanthan, Perak, are undergoing capacity expansion projects, there is intense competition, putting pressure on domestic cement prices. Moreover, coal prices have also been rising. The company is also having to deal with higher integration costs following its merger with Holcim (M) Sdn as part of the LafargeHolcim Group.

Keranga Research has downgraded Lafarge Malaysia's FY16 and FY17 forecast by 59 per cent and 24 per cent, respectively. Lafarge Malaysia's net profit fell 69.4 per cent in 1H16, due to weak demand and lower cement revenues after delays in mega projects such as the KL118 skyscraper construction.

It is understood that the higher capacity realisation at Lafarge Malaysia's two cement plants being expanded will provide savings on transportation costs, as clinker will no longer needed to be delivered from the Langkawi plant, Kedah, to the grinding units in Pasir Gudang, Johor.