Period

1Q15

Actual vs. Expectations

1Q15 core net profit (CNP) of RM76.7m came in within expectations, making up 22.1% and 22.2% of our and consensus expectations, respectively. We adjusted the CNP by excluding one-off items, namely unrealised forex gains of RM3.0m.

Dividends

Within expectation. The company announced a first interim dividend of 8.0 sen. For the full-year, we expect a total dividend of 40.0 sen, which translates into net dividend yield of 4.2%.

Key Results Highlights

QoQ, while 1Q15 revenue was marginally up by 1.7% to RM696.1m, 1Q15 CNP rose strongly by 55.3% to RM76.7m. Stronger bottomline performance was mainly attributable to: (i) earnings recovery in concrete division (returned to the black) driven by higher demand, and (ii) higher operating profit in cement segment (+39.6%) driven by higher sales and lower operating expense.

YoY, 1Q15 CNP rose marginally by 2.5% to RM76.7m, driven by higher cement and concrete sales, where both rose by 1.4% and 10.4%, respectively, thanks to stronger domestic demand.

Outlook

We believe that domestic cement demand should remain resilient in FY15, in line with our in-house’s construction GDP growth forecast of 9.8%.

Nonetheless, we remain cautious on the cement players’ earnings outlook given that the persistent intense competition which will likely result in a price war. This is due to the expected 14% capacity expansion in Peninsular Malaysia until FY16.

Change to Forecasts

Unchanged.

Rating

Maintain UNDERPERFORM

Valuation

We maintain our TP at RM8.20 based on unchanged FY15E PER of 20.0x. Our TP implies a -0.5 SD discount on 5-year historical PER.

We think that LAFMSIA is overvalued at this juncture (currently trading at a Fwd-PER of 23.2x), given that the industry is still faced with intense competition. As such, we maintain LAFMSIA at UNDERPERFORM.

Risks to our call

Higher-than-expected cement prices

Lower-than-expected raw material and energy costs

Stronger-than-expected cement demand

Source: Kenanga Research - 21 May 2015