Results

1H13 net profit of RM135.7m (-7.6%) came in below expectations, accounting for 33.6% and 34.3% of consensus and our full-year forecasts, respectively.

Deviations

Stiff competition that resulted in higher-than-expected cement price rebate for the domestic market.

Dividend

Declared 2nd interim NDPS of 8 sen (ex date: 25 Sep; payment date: 23 Oct). For the full year, we are projecting a total NDPS of 37 sen, translating to a net yield of 4.1%.

Highlights

YoY. Despite revenue growing by 4.6% to RM728.9m (mainly on higher aggregate and concrete sales), 2Q13 net profit declined by 0.8% to RM81.4m mainly on the back of stiff competition that resulted in lower domestic cement selling price.

QoQ. 2Q13 net profit grew by 50% to RM81.4m mainly on the back of a recovery in domestic cement sales volume (as 1Q is seasonally weaker on festive season and scheduled maintenance) and lower fuel cost.

YTD. 1H13 net profit declined by 7.6% to RM135.7m mainly on the back of competition that resulted in lower domestic cement selling price (that in turn filtered to the bottomline).

Net cash remains largely unchanged at RM373m (43.8 sen) as at end-Jun. While balance sheet will continue to remain strong (on the back of its consistent positive operating cash flow), we believe the potential of Lafarge paying additional dividend (on top of its quarterly DPS of 8 sen) will be limited by its potential expansion plan (which we expect it to finalise soon).

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

2013-14 net profit forecasts cut by 16.5-18.6%, largely to reflect higher rebate assumptions, which more than offset lower coal cost assumptions.

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

Correspondingly, TP reduced by 17.4% to RM8.33 based on unchanged 19.5x revised 2014 EPS of 42.7 sen. We are maintaining our Hold call on the stock

Source: Hong Leong Investment Bank Research - 28 Aug 2013