KUALA LUMPUR (Dec 14): RHB Investment Bank Research (RHB IB) has maintained its “overweight” rating on the building materials sector and said that out of the three companies that reported results, one exceeded expectations, while two fell below estimates.

In a sector update on Thursday, the research house said its top sector picks are Press Metal Aluminium Holdings Bhd and Malayan Cement Bhd.

RHB IB said it is optimistic on the aluminium market, given the low inventory levels, increasing electric vehicles (EVs) adoption, and China’s economic upswing in 2H2024F.

“Our confidence on the cement industry stems from its alignment with the construction sector and anticipated sustained demand, fuelled by major domestic infrastructure projects,” it said.

RHB IB said Press Metal’s 9M2023 core earnings of RM877.3 million fell below house’s and consensus’ expectations at 58% and 67% of full-year estimates.

It said the year-on-year (y-o-y) decline in quarterly earnings was attributed to a flattish-to-softer drop in London Metal Exchange (LME) aluminium prices — averaging at USD2,159/tonne (-4.6% q-o-q; -8.4% y-o-y).

“Despite an 8.5% q-o-q (quarter-on-quarter)decline in revenue, core profit after tax and minority i nterest (Patami) remained stable, partially aided by lower input costs, stronger associate contributions, and improved sales volumes of value-added products.

“In addition to the stabilisation of LME aluminium prices, we expect Press Metal’s to enjoy further savings in raw material costs moving forward, due to its lag effect,” it said.

Meanwhile, among the two cement players under its coverage, RHB IB said that Malayan Cement surprised consensus with its quarterly performance, while Cahya Mata Sarawak Bhd fell short of expectations.

It said Malayan Cement’s 1QFY2024 earnings of RM88.5 million were at 49% and 43% of its and consensus’ full-year forecasts.

Revenue grew 13.6% q-o-q and 33.7% y-o-y to RM1.15 billion, driven by a spike in sales volumes and average selling prices (ASPs) for both domestic cement and ready-mixed concrete.

“Cement and ready-mixed concrete volumes rose 15% q-o-q and 18% y-o-y. In contrast, Cahya Mata’s 9M2023 earnings of RM69.9 million were at only 62% and 50% of our and street’s full-year projections.

“The weaker-than-expected results were due to widening losses in the phosphates division and weaker contribution from road maintenance, property development and strategic investments,” RHB IB said.

The research house highlighted the risks of decline in LME aluminium prices, decelerating global economic growth, higher-than-expected raw material costs, lower-than-expected cement ASPs, and lower-than-expected cement production.