• Malayan Cement (MC) reported a narrower core net loss of RM8.2m in 6MFY21 (vs loss of RM80m in 6MFY20) mainly due to its effective cost rationalisation efforts
• Results were broadly within our expectations but below street’s – making up 77% and 34% of our and the consensus full-year estimates
• Maintain HOLD with an unchanged target price of RM2.55 based on a FY21E P/BV of 0.95x

2QFY21 Earnings Came in Within Our Expectation

On a qoq basis, the 2QFY21 headline net loss widened to RM4.9m (vs core net loss of RM0.2m in 1QFY21), mainly due to a decline in domestic cement sales volumes from lower demand caused by the reimplementation of the Movement Control Order (MCO) in most states in early November 2020. The revenue decline of 4.7% to RM350.5m more than offset a 0.8% decline in operating cost, leading to a contraction of the EBITDA margin by 3.6ppt to 10.1%. After excluding one-off items, the group recorded a wider core net loss of RM6.2m in 2QFY21. This was below the street’s expectation but broadly within our expectation.

Cumulatively, Core Net Loss Narrowed to RM8.2m

On a yoy basis, MC’s 6MFY21 headline net loss narrowed to RM6.2m (-93.5% yoy) despite a decline in revenue by 28.9% yoy. The narrower net loss was attributed to a 37.2% decline in operating cost, 9% yoy decline in depreciation cost and 67.3% yoy increase in profit from associates. After excluding one-off items, the group recorded a narrower core net loss of RM8.2m in 6MFY21 (vs core net loss of RM80m in 6MFY20).

Maintain HOLD With An Unchanged Target Price of RM2.55

We maintain our HOLD rating on MC with an unchanged 12-month target price of RM2.55 based on FY21E P/BV of 0.95x (-1.5SD of its 10-year mean). We anticipate some recovery in cement demand going forward upon the continuation of construction activities following the distribution of Covid-19 vaccines. Key downside/upside risks to our HOLD call include; (1) increased/decreased price competition; (2) weaker/stronger domestic cement demand; and (3) higher/lower coal and raw-material prices.

Source: Affin Hwang Research - 26 Feb 2021