Malaysia: cement stocks firming up on better 2H outlook

Malaysia: cement stocks firming up on better 2H outlook
09 September 2010

Cement players have seen share prices firming up despite their lacklustre first half results and flattish demand for cement. Nonetheless, the consensus is that there will be a pick-up in demand in the second half.

Lafarge Malayan Cement Bhd has seen its share price surging 20.8 per cent year-to-date to close at MYR7.55 (US$2.4)yesterday, while YTL Cement Bhd rose 4.5 
per cent from a 52-week low of RM3.81 on May 26, to close at MYR3.98 yesterday.

“It had been mostly a flattish year for cement players, with their exports hit largely by the exchange rate (stronger ringgit) and meanwhile domestic demand has not been picking up.

“Nonetheless, I think demand should improve and pick up in the second half of the year,” an analyst told The Edge Financial Daily. He forecasted a five 
per cent YoY increase in demand for cement this year.

Investors have continued to hold on to cement players, which have been rewarding shareholders with decent dividends.

For 1HFY10 ended June 30, Lafarge had declared dividend of eight sen per MYR1 share twice. If annualised, total dividend for FY10 could amount to 36 sen or a 4.2 
per cent yield. The company paid out 15 sen per MYR1 share for FY09.

For 1HFY10, Lafarge’s net profit dropped 30 
per cent to MYR123.67m from a year earlier on the back of MYR1.14bn in revenue, due to lower contributions from ready-mixed concrete operations, and certain non-recurring plant repair costs and expenses.

In a report dated Aug 26, Maybank maintained “hold” on Lafarge with a target price of RM6.40. It however expected Lafarge’s earnings to catch up for 2H10 on improved plant performance, falling coal cost and demand recovery.

“Domestic cement demand in 1H10 was flattish y-o-y and management is positive of a 2-6 
per cent full-year growth given the rollout of various public projects. Margins will continue to strengthen with coal cost trending down,” it said.

Both Lafarge and YTL Cement have MYR198.8m and MYR922.65m cash in hand respectively. Their borrowings stood at MYR217.52m and MYR710.41m. YTL Cement is currently sitting on a net cash position, while Lafarge has a net gearing of 0.6 times.

An analyst noted that these companies are sitting on a good pile of cash, given that their days of consolidation have passed.

Apart from Lafarge and YTL Cement, analysts have noted the good earnings posted by smaller cement players Tasek Corp Bhd and Gopeng Bhd.
Published under Cement News