Results

1Q13 net profit of RM54.3m (yoy: -16.2%; qoq: -48.6%) accounted for only 11.4-12.7% of our and consensus fullyear estimates. While 1Q is historically weaker on the back of shorter working days (hence resulting in weaker domestic cement consumption), and management’s view that domestic price stability will return in the coming months, we believe the results were below expectations.

Deviations

Lower-than-expected domestic selling price and sales volume, we believe.

Dividend

Declared 1st interim NDPS of 8 sen. For the full year, we are projecting a total NDPS of 37 sen, translating to a net yield of 3.4%.

Highlights

QoQ. 1Q12 net profit declined by 48.6% to RM54.3m, mainly on the back of seasonally weak demand arising from festive holidays and scheduled maintenance.

YoY. Despite a flattish revenue, 1Q12 net profit declined by 16.2% mainly on the back of intense competition, which resulted in lower domestic selling price.

Balance sheet improves further. On a more positive note, net cash continued to expand to 44 sen/share from 41.5 sen/share in 4Q12 and 6.1 sen/share in 1Q12, mainly due to the absence of hefty capex requirement. We continue to hold the view that balance sheet will continue to remain strong, given the absence of near-term lumpy capex commitment.

Risks

• Delays in the implementation of projects under the ETP, resulting in lower-than-expected demand for cement consumption;
• Price war intensifies; and
• Steep rise in energy prices, in particular, coal and electricity.

Forecasts

• Maintained with downward bias, pending further update from analyst briefing on 27 May 2013.

Rating

HOLD

• Positives – (1) Positive cement demand outlook; (2) Largest cement player; (3) Strong balance sheet; and (4) Generous dividend payout
• Negatives – (1) Pricey valuation; and (2) Illiquid share trading volume.

Valuation

• No change in our TP of RM9.27 (based on unchanged 16.5x 2013 EPS of 56.2 sen) as well as our Hold recommendation for now, pending the analyst briefing next week.

Source: Hong Leong Investment Bank Research - 23 May 2013