Results

• FY15 core net profit of RM228.3m (-10.8%) came in below expectations, accounting for only 81-89.9% of consensus and our forecasts.

Deviations

• One-off acquisition expenses.

Dividend

• Declared 4th interim NDPS of 7 sen (entitlement date: 22 Mar 16; payment date: 20 Apr 16), bringing NDPS YTD to 31 sen, lower than our projected NDPS of 45 sen.

Highlights

• Despite a flattish revenue growth of 0.3%, FY15 core net profit declined by 10.8% to RM228.3m mainly on one-off acquisition expense, lower net interest income and RM6.1m associate losses (due to intense competition).

• QoQ. Despite revenue growing by 7.1% to RM718.3m (on higher cement sales volume), 4Q15 core net profit declined by 24.9% to RM42.2m, and this was due mainly to one-off acquisition expense and higher finance costs and interest income (arising from the acquisition of Holcim (Malaysia) Sdn Bhd.

• We note that Lafarge’s balance sheet position has reversed to a net debt of RM3.5m in 4Q15 (from net cash of RM32.4m in 3Q15 and RM54.2m in 4Q14) mainly on the completion of acquisition of Holcim (Malaysia) Sdn Bhd (for RM325.5m) in Nov-16. Nevertheless, we believe the acquisition will unlikely affect its ability to payout decent dividend, given its strong operating cash flow of RM356.6m.

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

• FY16-17 net profit forecasts fine-tuned by 0.4% and -1.3% respectively.

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

Post earnings adjustment, target price was lowered by 1.3% (from RM8.64) to RM8.54, based on unchanged 22.5x revised FY17 EPS of 38 sen. Maintain HOLD recommendation on the stock.

Source: Hong Leong Investment Bank Research - 1 Mar 2016