Results

• Within expectations. 1QFY15 net profit of RM73.7m (qoq: +47.6%; yoy: -0.3%) accounted for 19.2% and 21.3% of our and consensus full-year forecasts, respectively. We consider the results within expectations as 1Q is traditionally weaker on the back of shorter working days. With the exception of FY14, 1Q historically accounted for about 20% of the full-year earnings.

Deviations

• Broadly in line.

Dividend

• Declared 1st interim single-tier DPS of 8 sen (entitlement date: 19 Jun 2015; payment date: 15 Jul 2015). For the full-year, we are projecting a total DPS of 45 sen, translating to a dividend yield of 4.7%.

Highlights

• QoQ… 1QFY15 net profit improved by a whopping 47.6% to RM73.7m, due mainly to better aggregate and concrete demand, the absence of production hiccup (which occurred in 4QFY14), and improved domestic cement selling prices (we believe, and this is witnessed by the sharp improvement in operating margin of the cement segment).

• YoY… Although revenue was higher by 2.9% (led by stronger aggregate and concrete sales), 1QFY15 net profit declined marginally (by 0.3%) to RM73.7m. The stronger performance at the aggregate and concrete segment was more than offset by lower interest income and higher associate losses.

• Net cash remain high at RM432.2m (or 50.9 sen per share). We continue to hold the view that Lafarge’s balance sheet will remain strong (which will in turn sustain its generous dividend payout), given its ability to generate strong operating cashflow.

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.

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 recommendation.

Source: Hong Leong Investment Bank Research - 21 May 2015