• Reiterate Add; raise FY6/24F-FY6/26F EPS and lift TP to RM6.00.

• Awaiting large Malaysia mega projects but exports to Singapore providing strong tailwinds, in our view

• We do not see a near-term threat from CIMA sale, as MCement has dominant share.

Reiterate Add; Raise FY24F-FY26F EPS Forecasts and TP

We raise our FY6/24F/FY6/25FY6/26F EPS by 28%/22%/9% to factor in stronger volume growth of 8% per annum (vs. 5% previously) and as we make some adjustments in costs and tax rates. 1QFY6/24 volume grew 14% qoq and 18% yoy which led to a doubling in EBITDA margins yoy to 24% given the high operating leverage. This was on the back of stable ASP which is currently at RM410/MT (with rebates of RM30-RM70/MT). We reiterate Add. With our higher forecasts and as we roll our base year one year forward, our DCF derived TP rises to RM6.00 (WACC 7.6%, TG 3%). MCement trades at a CY24F EV/EBITDA of 8.6x and 0.8x P/BV on our revised earnings, which we think is inexpensive given its FY23-FY26F EPS CAGR of 40%. Key downside risks are slowing property demand and delays in the award of key infrastructure projects. Key re-rating catalysts are faster-than-expected rollout of key projects and stronger-than-expected property sales

Local Projects to Drive Growth With Singapore Providing Tailwinds

With the likely rollout of key mega projects in 2024F, such as MRT 3, Bayan Lepas LRT and eventually HSR, we think MCement with its 65% production capacity market share will be a key beneficiary. MCement has also quietly achieved a 40% market share in Singapore as it owns the largest cement terminal in Singapore with a capacity of 5m tonnes per annum. We believe MCement has an edge in logistics in view of its ability to export cement and clinker to Singapore and South Asia via its strategically located Langkawi plant. We expect a slew of mega projects in Singapore such as, Changi Terminal 5 (S$10bn), Integrated Resorts Expansion (S$9bn), Tuas Megas Port (S$20bn) and MRT Projects ($57bn) to be awarded over the next few years.

Sale of CIMA Not a Near-term Threat

While it looks like clear blue skies for MCement currently, we will monitor the potential sale of Cement Industries of Malaysia (CIMA), a unit of UEM Group. Local newspaper The Edge reported in Nov 23 that UEM is looking to sell its 100% stake in CIMA, citing interest from parties. The article said three foreign outfits (from Germany, the Philippines and China) have formed consortiums with local bumiputera parties and four local entities have been shortlisted, while none of the existing cement players put in bids. CIMA reported a loss before tax of RM41m in FY22 on the back of RM1bn revenue, narrowing from RM70m in FY21. We expect no medium-term impact on MCement from this given its dominant market share, but we would be cautious over the longer term as the entry of Alliance Steel from China in Kuantan had a negative impact on existing steel players locally while the entry of foreign cement in Indonesia also eroded margins of the incumbents.

Source: CGS-CIMB Research - 29 Nov 2023