Lafarge Malaysia secured a RM254m contract from Petronas for the supply of concrete to a RAPID project and other Petronas projects in Pengerang. The contract will be for a tenure of 5 years. Separately, Lafarge has entered into a sales and purchase agreement with a related party, Lafarge Ciment, to acquire a cement mill in Port Klang and its equipment for a total sum of Euro 10.7m or RM46m. The acquisition was made on an arm’s length basis on competitive commercial terms and is expected to be completed by 1Q15. The first tranche of the Euro 1m will be retained by Lafarge Malaysia as a manufacturer's  warranty,  while  the  remaining  sum  will  be  paid  within  30 days  upon  receipt  of  the  cement  mill.   The  acquisition  would  be  funded internally. (Source: Bursa Malaysia)

Comment:  We are positive on the contract award and view the acquisition positively.  The  acquisition  is  in  line  with  Lafarge's  capacity  expansion strategy,  with  its  latest  addition  to  capacity  to  start  producing  from  its Kanthan  Ipoh  plant  in  2Q16  and  has  34  ready-mix  facilities  to  date.  We make no changes to our earnings forecast and maintain SELL with a target price of RM8.20 on expectations that new capacity coming on stream from YTL Cement and Lafarge will continue  to add further pressure on average net selling prices for cement.

Source: Affin Hwang Capital Research - 24 Dec 2014