Results

FY13 net profit of RM385.7m (+10.5%) came in above expectations, accounted for 105.9% and 116.6% of consensus and our forecasts respectively.

Deviations

Higher-than-expected sales volume.

Dividend

Declared 4th interim single-tier DPS of 17 sen, bringing total DPS for the year to 41 sen, which is higher than our projected total DPS of 38 sen.

Highlights

YTD. FY13 net profit grew 10.5% to RM385.7m mainly on the back of higher domestic cement and concrete sales, coupled with higher net interest income and associate earnings.

QoQ. Net profit continued to improve (by 7.9% to RM129.8m in 4Q13), and we believe the strong set of earnings were due mainly to improved overall market demand for cement, which led to stable cement prices, hence translating to better earnings performance. Cement demand aside, the better performance was also due to higher net interest income and associate earnings.

Net cash increased to RM450.4m (53 sen/share) from RM432.5m (50.8 sen) in the previous quarter. As highlighted in our previous briefing note, we believe Lafarge’s capex plan will not impair its ability to pay out high dividend in future, given its strong cash generation ability and balance sheet.

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

FY14-15 net profit forecasts raised by 8.2-8.5% to RM355.6m and RM424.9m respectively, largely to account for higher domestic sales volume assumptions.

Rating

BUY

Positives – (1) Positive cement demand outlook; (2) Largest cement player; (3) Strong balance sheet; and (4) Generous dividend payout

Negatives – Illiquid share trading volume.

Valuation

TP raised by 8.2% to RM9.74 (based on unchanged 19.5x revised 2015 EPS of 49.9 sen), following the upward revision in our earnings forecast. Recommendation upgraded from Hold to BUY as valuation is becoming more palatable following the recent sharp share price retreat and our earnings upgrade.

Source: Hong Leong Investment Bank Research- 26 Feb 2014