MCement posted 3QFY06/20 core net loss of RM32.1m (vs. core net losses of RM47.7m last quarter and RM101.5m SPLY), this bringing 9MFY06/20 core net loss to RM113.2m. We deem the results in line with our full year core net loss of RM170m as we anticipate gradual improvement in cement prices to help narrow the losses. Maintain our forecast and HOLD with TP of RM3.28. Our TP of RM3.28 is based on replacement cost of USD100/tonne of MCement’s clinker capacity

Results inline. MCement posted 3QFY06/20 core net loss of RM32.1m (vs. core net losses of RM47.7m last quarter and RM101.5m SPLY), this brings 9MFY06/20 core net loss to RM113.2m (vs loss of RM245.9m in SPLY). We deem the results in line with our full year core net loss of RM170m as we anticipate gradual improvement in cement prices to eventually narrow the losses.

QoQ. Revenue declined 1.2% QoQ to RM466m as weaker domestic cement sales were partially offset by higher export sales. Core net loss narrowed to RM32.1m (from a core net loss of RM47.7m in previous quarter) assisted by lower operational cost (as a result of various cost cutting measures undertaken since 2018).

YoY. For this purpose, we are comparing 3QFY06/20 to July-Sept 2018 (i.e. SPLY). Despite lower revenue (due to lower cement sales), core net loss managed to narrow to RM32.1m (from a core net loss of RM101.5m last year) on the back of lower operating cost arising from improved distribution cost, savings from headcount reduction and various cost cutting measures.

YTD. Despite lower revenue by 6.2% to RM1.47bn (largely from lower cement sales on the back of weak domestic demand), core loss narrowed to RM113.2m (against core net loss of RM246m in 9MFY18). The key reason was better cost management arising from lower distribution cost and various cost cutting measures.

Outlook. Despite weak top line, MCement managed to narrow its core net loss, largely due to cost cutting measures. We believe measures taken are sustainable in the immediate term and necessary in the absence of revenue growth, no thanks to tepid construction activity and lack of new launches by property developers.

Forecast. Maintain our forecast at this juncture, pending further updates from management. Our forecast is adjusted for 18 months for the period of FY06/20.

Maintain HOLD, TP: RM3.28. We believe recent increase in cement price to RM235/MT may not sustainable in the near term due to the absence of significant cement consumption, chiefly from the delay in resumption of various mega projects. Until we see a firm revival of cement consumption (likely from 2H20 onwards), we believe MCement’s losses can only be narrowed from cost cutting measures. Our TP of RM3.28 is based on replacement cost of USD100/tonne of MCement clinker capacity.

Source: Hong Leong Investment Bank Research - 3 Dec 2019