Lafarge (M) Cement (Hold; TP: RM7.11)

Largest Beneficiary from ETP

'''' Our investment highlights for Lafarge are:

1.'' Our favourable outlook on the construction sector, and cement sector is the major direct beneficiary from the construction sector;

2.'' As the largest player in Malaysia, Lafarge will be the largest beneficiary from ETP implementation; and

3.'' Strong balance sheet.

'''' We are projecting Lafarge's net profit in 2012-13 to rise by 32.7% and 10.8% to RM366.2m and RM405.7m from a projected net profit of RM276.0m in 2011.

'''' We are initiating coverage on Lafarge with a HOLD recommendation and TP of RM7.11 based on 16.5x 2012 EPS of 43.1 sen.

''

December Inflation Report

'''' CPI growth eased further to 3.0% yoy in Dec 2011 (Nov: +3.3% yoy), slightly below the consensus estimate of 3.1%, due mainly to lapse of fuel price hike effected a year ago. Accordingly, price increase of the transport category eased sharply to 1.9% yoy (Nov: +3.9% yoy).

'''' The lapse of fuel price hike contributed to a 0.3ppt reduction in the CPI growth. December inflation rate would have remained at 3.3% yoy if Pemandu had continued with its subsidy removal in Dec 2011.

'''' Stable mom CPI growth of 0.1% and easing of services inflation (3.1% yoy; Nov: 3.2% yoy) provided a relief that price pressure on the ground has begun to stabilise.

'''' We now lower our inflation forecast for 2012 to 2.7% from earlier forecast of 3.0% as Pemandu did not perform any subsidy removal for Dec 2011 as anticipated.

'''' We expect BNM to keep the OPR at 3.00% until end-2012 given the resilient economic growth with sticky inflation.

''

Holding well above the key 200-d SMA support''

'''' We reiterate that as long as KLCI continues to remain its posture above the crucial 200-d SMA (now at 1502), the benchmark index is still likely to gradually refill the huge gap of 1529-1546 resistance recorded on 5 Aug 11, probably as early as next week. Ahead of the CNY holidays next week, we expect more sideways consolidation above the 200-day SMA. Breaking the key 200-d SMA will drag index lower to 30-d SMA (1496) and 50-d SMA (1484) levels.

Medium to long term positive after recent consolidation

'''' Following the breakout above the downtrend line formed since 2002 coupled with improving technical readings on the monthly chart, BOXPAK is expected to rally further towards the 50% FR (at RM2.36) and 38.2% FR (RM2.65), which is also the 52-wk high. A breakout above RM2.65 will drive prices higher to a more formidable resistance near RM3.00.

'''' We believe BOXPAK could find its floor soon amid signs of bottoming up on its hourly chart and share prices also retraced back to below the 50% FR (daily chart). Immediate supports are RM2.06 (61.8% FR-daily chart) and RM2.00 (monthly mid Bollinger band). Cut loss below RM2.00.