Tighter margins forecast for Malaysian cement producers in 2H18

Malaysia cement players are receiving warnings from financial analysts that margins are expected to come under more pressure in the coming months, while a contraction of cement demand is forecast for the second half of the year.

According to CIMB Research, this is a potential negative for the earnings outlook of cement companies in the second half of the year.

"This makes it unlikely for any cement company to initiate a price hike to cover rising operating costs.
"For cement players, margins could remain under pressure," the research house said.

CIMB Research said due to this, it has revised its 2018 forecast industry cement consumption growth of three per cent to a three per cent contraction at 17.3Mt.

It noted that cement consumption contracted eight per cent YoY in 2017 compared to a six per cent decline in 2016.

CIMB Research has downgraded the building materials industry to an 'underweight' from 'neutral'.
It said that earnings risks for cement players would sustain in the second half, more so for Lafarge Malaysia Bhd.

"Our earlier epectations of a recovery in cement demand, driven by cement-intensive phases of large-scale infrastructure projects that were expected to regain momentum after the GE14 no longer hold," it said.

CIMB Research further explained that although the domestic cement sector has come off its peak capital expenditure cycle for capacity expansion, it did not think the oversupply situation would reverse in the upcoming second half season.