Investment Highlights

• We maintain our forecasts, HOLD call and FV of RM4.05 based on 1.25x FY18F BVPS, consistent with its historical P/B ratio during the transitional period between the trough and mid-cycles.

• This follows the award by China Communications Construction (CCCC) to Lafarge Malaysia as the cement supplier for the proposed East Coast Rail Link (ECRL) with an estimated contract value of RM270mil, translating to 1mil to 1.2mil tonnes in terms of volume based on our estimates. Lafarge is required to supply its cement for all eight packages of ECRL construction work. The contract, which ends by December 2019, comes with the option for both parties to extend the contract for additional two years, subject to mutually agreed renewal terms and condition.

• We are positive on the latest development. Meanwhile, we are keeping our sales volume and ASP assumptions unchanged FY18-20F as we have factored in the plausible cement supply contract wins from ongoing mega infrastructure projects. Our sales volume assumptions for FY18-20F are 7.5mil MT, 8.4mil MT and 9.1mil MT while cement ASP assumption FY18-FY20F are RM255/MT, RM265/MT and RM270/MT respectively.

• We strongly believe cement demand and ASP will improve in the coming years backed by stable demand from the ongoing mega infrastructure projects such as ECRL and gradual recovery from the property sector.

• We continue to like Lafarge because: 1) it is the dominant player in the cement sector in Peninsular Malaysia with a 40% market share, making it a good proxy for public infrastructure spending; and 2) it practises strong environmental, social and governance (ESG) standards.

• However, while the demand for cement will pick up over the near term thanks to the rollout of key mega infrastructure projects, it may not immediately absorb the expanded industry capacity stemming from aggressive capex by key players in recent years

Source: AmInvest Research - 20 Mar 2018