Results

• FY14 net profit of RM256.0m (-33.6%) came in below expectations, accounted for only 83.1% and 80.6% of our and consensus full-year forecasts.

Deviations

• Intense price competition, which has in turn resulted in weaker-than-expected cement selling prices.

Dividend

• Declared 4rd interim single-tier DPS of 8 sen (ex-date: 16 Mar 15; payment date: 15 Apr 15). YTD, Lafarge has declared NDPS of 34 sen FY14 (translating to a yield of 3.3%).

Highlights

• YTD. Intense competition, lower cement sales volume, electricity tariff hike, higher transportation cost from removal of fuel subsidy as well as lower concrete sales (as a result of completion of KLIA 2 project), has resulted in FY14 net profit declined by 33.6% to RM385.7m.

• QoQ. 4Q14 net profit declined by 8.9% to RM49.9m, and the weaker earnings was due mainly to: (1) Intense price competition (which has in turn resulted in lower cement selling prices); (2) rainy season (which affected construction activities, hence cement consumption); and (3) removal of subsidy (which has resulted in higher transportation costs).

• Net cash increased to RM460.9m (54.2 sen) from RM434.1m (51.1 sen) in the previous quarter. Despite the competitive environment that caused a decline in net profit, we continue to hold the view that dividend payout will remain generous, given its healthy cash reserve, strong cash generation ability and absence of huge capex.

Risks

• Delays in the implementation of projects under 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

• Maintain for now, pending further update from analyst briefing on 3 Mar.

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

• Maintain TP of RM10.72. (based on unchanged 22.5x P/E or one standard deviation above its 3-year average forward P/E and 2016 EPS of 47.7 sen). Maintain BUY for now. We will review our forecasts and rating pending the analyst briefing on 3 March.

Source: Hong Leong Investment Bank Research - 27 Feb 2015