FY16 CNP of RM84.5m came above our expectations (137%) but in line with consensus (95%). The positive variance was due to the lower-than-expected effective tax rates from the recognition of deferred tax assets arising from reinvestment allowances. No dividend was declared this quarter, bringing total dividend dished out in FY16 to 5.0 sen; below our estimates of 7.0 sen. Maintain FY17E earnings and introduce FY18E earnings of RM191m. Reiterate UP with an unchanged TP of RM6.06.

Above expectations. FY16 CNP of RM84.5m came above our expectation (137%) but in line with consensus (95%). The positive variance was due to the lower-than-expected effective tax rates from the recognition of deferred tax assets arising from reinvestment allowances. No dividend was declared this quarter, bringing total dividends dished out in FY16 to 5.0 sen; below our estimates of 7.0 sen.

Results Highlight. FY16 CNP of RM84.5m was down 64% YoY underpinned by: (i) lower cement revenue (-15%) due to weak demand as a result of the slowdown in property market and delay in major infrastructure projects (KL118) coupled with pricing pressure causing margins compression (-10ppt), (ii) higher depreciation costs (+22%) from new plant in Rawang and Kanthan, and (iii) net interest expense of RM6.5m incurred (vis-�- vis net interest income of RM10.7m) due to the borrowings raised in end-FY15 for the acquisition of Holcim Malaysia. 4Q16 CNP of RM40.4m improved 15-fold QoQ due to: (i) tax credit recognition of RM30.5m versus tax expense of RM2.5m in 3Q16, and (ii) higher cement revenue (+9.3%) on the back of marginally better demand which subsequently improved its EBIT margins (+2.5ppt).

Cautious outlook. We note that FY16 demand of cement was exceptionally weak and expect FY17 demand to pick up driven by large amount of infrastructure jobs awarded in FY16 entering into more advanced stages. Based on channel checks, cement rebates are going at c.RM60-80/t which is decent vis-�-vis FY16?s highs of c.RM200/t. Nonetheless, we are still cautious with the outlook for the cement sector due to: (i) uncertainty over the overall property market as it makes up two-thirds of cement demand, and (ii) cement oversupply capacity, which could cause price competition to persist.

Maintain earnings. Post results, we maintain our FY17E earnings of RM182m in which we have factored for increased demand within the cement segment. Meanwhile, we also introduce our FY18E earnings of RM191m.

Maintain UNDERPERFORM. Post results, we reiterate our UNDERPERFORM call with an unchanged TP of RM6.06 based on 1.66x FY17E PBV which implies a 5-year historical -2.3x SD PBV. We believe our valuations are justifiable considering that LAFMSIA missed out on dividends for the last 2 quarters which they had been consistently paying out every quarter since FY10.

Risks to our call include higher-than-expected cement prices, lower-than-expected raw material and energy costs, and stronger- than-expected cement demand.

Source: Kenanga Research - 23 Feb 2017