Results

• Below expectations. 1QFY16 net profit of RM20.7m (qoq: -52.4%; yoy: -72.0%) accounted for 8.4% and 7.4% of our and consensus full-year forecasts, respectively. While 1Q is usually weaker (on shorter working days), the results came in below expectations.

Deviations

• One-off Holcim integration expenses.

Dividend

• Declared 1st interim single-tier DPS of 3 sen (entitlement date: 30 Jun 2015; payment date: 27 Jul 2015). For the full year, we are projecting a total DPS of 31.0sen.

Highlights

• QoQ… 1QFY16 net profit dropped by 52.4% to RM20.7m. This is on the back of one-off integration cost, lower net interest income, RM3.4m associate losses, higher other operating expenses and persistent price competition. Finance cost has increased due to higher debt raised for the acquisition of Holcim (Malaysia) Sdn Bhd.

• YoY… Net profit declined by 71.97% on the back of lower selling price caused by intense competition, whilst PBT declined by 69.1%.

• Net debt increased further to RM135.7m (from RM29.7m in 4Q15).

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

• Maintained with downside bias, pending further update from analyst briefing on 30 May 2016.

Rating

HOLD

Positives

• (1) Positive cement demand outlook; (2) Largest cement player; and (3) Generous dividend payout

Negatives

• (1)Illiquid share trading volume; and (2) Weakening balance sheet

Valuation

• Maintain TP of RM8.46 (based on unchanged 22.5x P/E and FY17 EPS of 37.6 sen) as well as HOLD recommendation for now, pending the analyst briefing next week.

Source: Hong Leong Investment Bank Research - 24 May 2016