- Maintain BUY on Lafarge Malaysia with our fair value intact at RM10.02/share on an unchanged target PE of 20x. Lafarge reported 3Q13 net profit of RM120mil, taking 9MFY13 earnings to RM255mil.

- We deem the results to be in line, making up 81% of our full year estimates (consensus: 74%), as 4Q is expected to be seasonally weaker with the pace of construction activities slowing down towards the year-end festive period.

- 9M13 revenue rose by 2% YoY on higher volume sales, although we anticipate that selling prices remained somewhat subdued. Nevertheless, bottomline rose by a stronger 5% on account of:- (i) better plant performance; and (ii) positive impact from lower coal prices beginning to filter through.

- We retain our FY13F cement growth assumptions of 5%, as we expect the pace of construction activities to pick-up after the 13th general election.

- However we flag that cost pressures may persist in the months ahead if the government decides to roll back on its fuel and electricity subsidies. This, in turn, may impact Lafarge’s margins if it is not met with either a pick-up in sales volume/efficiency or higher selling prices.

- Lafarge paid a third interim tax-exempt DPS of 8 sen –bringing total DPS paid for 9M13 to 24 sen. Should Lafarge continue to pay dividends in 4Q13 as with previous quarters, our FY13F DPS forecast of 42 sen is retained. This translates into a decent net yield of 4.2%.

- Lafarge announced in September that the group is poised to embark on an expansion plan to further solidify its market leader position in Malaysia. This would include adding another 1.2 mil tonnes of cement output via the expansion of its Rawang and Kantan plants. 

- Lafarge is also building two new ready-mix batching plants in Chan Sow Lin and Sg.Buloh aside from opening one more quarry in Nilai. The Chan Sow Lin plant was expected to kick off last month.

- Significantly, Lafarge’s capacity expansion in Rawang and Kantan is a strategic move to improve its logistical reach in Peninsula in order to serve its clients better. Contributions are expected to come in from 2015 onwards.

- At the same time, this would free up capacity at its Langkawi plant to explore more export opportunities within the ASEAN market – starting with Myanmar. We maintain BUY.

Source: AmeSecurities