Results

9M13 net profit of RM256m (+5.2%) came in within expectations, accounting for 74.2-77.4% of consensus and our full-year forecast.

Deviations

None

Dividend

Declared 2nd interim NDPS of 8 sen (ex date: 26 Dec 2013; payment date: 22 Jan 2014). YTD, the company has declared total NDPS of 16 sen. For the full year, we are projecting a total NDPS of 37 sen, translating to a net yield of 3.8%.

Highlights

YoY. 3Q13 net profit increased by 24.7% to RM120.2m mainly on the back of higher domestic cement and concrete sales, coupled with higher net interest income and associate earnings.

QoQ. 3Q13 net profit increased by 47.6% and we believe this was due mainly to improved market sentiment which led to reduced pricing competition within the domestic cement industry. Improved price competition aside, the better performance was also due to improved plant performance, higher net interest income and associate earnings.

Net cash increased to RM432.5m (50.8 sen/share) from RM373m (43.8 sen/share) a quarter ago. Pending more details on the potential capex in its expansion plan announced few months ago, we believe there is still a possibility that Lafarge may declare higher dividend given its strong balance sheet and cash generation ability (average of RM409m operating cash flow in 2010-12).

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.

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

TP maintained at RM8.33 based on unchanged 19.5x 2014 EPS of 42.7 sen. While we like Lafarge for its leading position in the growing cement sector and healthy balance sheet, we believe further capital appreciation will likely be capped by its pricey valuations. Maintain Hold recommendation.

Source: Hong Leong Investment Bank Research - 20 Nov 2013