- Maintain BUY on Lafarge Malayan Cement with our fair value placed under review pending an analyst briefing. Lafarge reported 1Q13 net profit of RM54mil against turnover of RM645mil.

- Notwithstanding some scheduled plant maintenance cost and a seasonally slower festive period, we consider the 1Q results to be below expectations.

- During the quarter, net profit shed 16% YoY as pricing pressures persisted. EBIT contributions from its core cement & clinker operations fell 20% YoY at RM69mil on the back of a 2.3-pts YoY decline (11.9%).

- We see two key reasons for this:- (i) Heavier discounting within the domestic cement industry with new entrants coming in – including Hume Cement; and (ii) Customers holding back onto cement purchases due to uncertainties over the 13th General Elections.

- On the flipside, Lafarge expects to see the pricing pressures dissipate in the coming months as such practises are unsustainable.

- We concur with management, and foresee a resumption of domestic orders now that uncertainty over the GE is out of the way. Furthermore, the civil works progress at some of the key big ticket projects such as the Sg.Buloh-Kajang MRT line is now in full swing over the next two years.

- Specifically, Lafarge is eyeing several portions of the MRT underground tunnel lining portion. The group is already an exclusive cement supplier for the upcoming KLIA2, Manjung and Tg.Bin power plants. This is augmented by:-(i) a healthy pipeline of property launches; and (ii) robust development plans within SCORE and Iskandar Malaysia.

- More importantly, Lafarge is scheduled to finalise its expansion plans during its board meeting this August – with a focus on the domestic market. We have not factored in any contributions from this, but trim FY13F net profit forecast by 8% on account of the weaker-than-expected 1Q13 results. FY14F-15F estimates are largely unchanged.

- Lafarge is looking to penetrate new export markets such as Myanmar soon. Exports make up ~20-30% of its sales. Also in the pipeline are plans to expand its range of products that would include free draining concrete, Mascrete ECO and Harimau.

- Lafarge paid an interim DPS of 8 sen, similar to that of last year. We have projected FY13F DPS at 42 sen, representing a net yield of 4%.

Source: AmeSecurities