- We maintain our HOLD rating on Lafarge Malaysia with an unchanged fair value of RM8.60/share on 23x its FY15F FD EPS. Lafarge recorded a 3Q15 net profit of RM71mil, bringing 9M15 earnings to RM208mil. Its results was in line, accounting for 71% of our full-year forecast but only 53% of consensus.

- We maintain or FY15F net profit forecast of RM294mil. Barring abnormal weather conditions during the monsoon season, we expect further gains in sequential earnings moving into 4Q15 (3Q15: +12% QoQ).

- On a 9M basis, Lafarge’s bottomline was flattish in its cement plant’s performance, and higher forex gains were offset by lower interest income, and RM7mil in associate losses vs a RM1mil profit a year ago.

- While the roll-out of select infrastructure projects under the 11th Malaysia Plan (11MP) would give Lafarge’ cement products a kick, the impact may not be immediate given the associated time lags in implementing these projects. Furthermore, cement prices may remain subdued in the near-term amid new incoming capacity.

- On 21 September, Lafarge announced its intention to acquire Holcim Malaysia Sdn Bhd (HMSB) for RM330mil cash. The acquisition was subsequently completed on 18 November with a revised acquisition price of RM325mil.

- This is in line with parent LafargeHolcim Ltd’s plans to consolidate its cement, ready-mixed concrete and other related building materials businesses in Malaysia.

- At RM330mil, the acquisition PE of 18x (based on HMCB’s trailing 12-month net profit of RM18mil up to 31 March 2015) appears to be value-accretive vs. Lafarge’ FY15F PE of 27x, and is within the regional average.

- From a strategic standpoint, the acquisition of Holcim appears to be a good fit to Lafarge - both of its plants are located in Pasir Gudang.

- Based on our initial estimates, we however only expect a marginal 2% lift to Lafarge’ FY16F EPS. This is largely due to Holcim’s smaller earnings base (6% of Lafarge’ FY15F net profit of RM294mil). We exclude any contributions from Holcim for now, pending more details.

- Valuations remain pricey. Trading at FY15F-16F FD PEs of 24x-27x, the stock is trading at the higher-end of its PE band. Lafarge declared a third interim single-tier DPS of 8 sen against our FY15F DPS forecast of 34 sen (9M15: 25 sen). Grossed-up, dividend yields are decent at 5%-6%.

Source: AmeSecurities Research - 19 Nov 2015