Investment Highlights

• We cut our FY21–23F net profit forecasts to RM3.5mil, RM9.2mil and RM16.9mil (from RM68.2mil, RM86.8mil, RM131.3mil) respectively largely to reflect lower cement price assumptions. We also trim our fair value (FV) to RM3.34 (from RM3.36 previously) after updating Malayan Cement’s net debt. Our FV is based on US$108 per clinker tonne (8.2mil clinker capacity x US$108 x RM4.12:US$1 minus RM809mil net debt), at a 10% discount to the replacement cost of US$120 to reflect the still changing cement sector outlook in Peninsular Malaysia. There is no FV adjustment for ESG based on our 3-star rating (Exhibit 3). Maintain BUY.

• We deem Malayan Cement’s 9MFY21 core net loss of RM2.6mil below expectations based our full-year net profit forecast of RM68.2mil and the full-year consensus net profit of RM12.1mil respectively. We expect a subdued 4QFY21 on the back of a new nationwide 2-week lockdown from 1 June 2021 on a resurgence in new Covid-19 infections.

• Its 9MFY21 core net loss of RM2.6mil narrowed significantly from a net loss off RM102.2mil during the same period a year ago thanks largely to: (1) a higher cement ASP, which we estimated at RM235/tonne for 9MFY21 (vs. about RM215/tonne during the same period a year ago); (2) lower coal cost and cost-cutting initiatives undertaken by the new controlling shareholder i.e. YTL Cement. These were partially offset by lower sales volume (on an annualised basis) as the local property and construction sectors continued to languish.

• We lower our per tonne cement ASP assumptions to RM240, RM250 and RM250 in FY21–23F (from RM260, RM270 and RM280). We also lower our sales volume assumptions to 3.8mil tonnes, 4.2mil tonnes and 4.3mil tonnes (vs. 4.2mil tonnes, 4.4mil tonnes and 4.5 tonnes respectively) during the same period. While we believe the worst is behind the cement sector in Peninsular Malaysia (thanks largely to the sector consolidation), the recovery will be gradual given the still weak outlook for its two main consuming industries, i.e. property and construction.

• We now see more rational competition amongst players in the cement sector in Peninsular Malaysia, following the industry consolidation with the takeover of the company by YTL Cement. We believe industry players (Malayan Cement included) are on the verge of a turnaround, followed with sustained profitability, subject to the pandemic gradually coming under control with the vaccine rollout.

Source: AmInvest Research - 31 May 2021