INVESTMENT HIGHLIGHTS

• 9MFY17 earnings falls below our expectations

• Demand/Supply gap unbalanced

• Earnings are impacted by unwavering OPEX

• Nevertheless, we reaffirm our SELL recommendation with a TP of RM3.80 per share

9MFY17 earnings falls below our expectations. LMFB’s 9MFY17 normalised PATAMI came in lower at –RM135m (-426%YoY) comparably. That said, its 1HFY17 earnings came in below our expectations, registering for only -122.7% of ours and -184.9% of consensus’ full-year forecasts respectively.

Demand/Supply gap unbalanced. We believe that the 9MFY17 is still impacted by the following:

i. Changes in construction methodology causing shift in patterns for construction building materials application such as alternative formworks such as precast flat panel, tunnel form, flat slabs, insulating concrete, lightweight concrete panel and polyurethane wall panels. The shift influenced demand by disrupting the distribution channel and demand of ready mix concrete and Ordinary Portland Concrete (OPC).

Earnings are impacted by unwavering OPEX. All in, we maintain our earnings forecasts at this point on the weak demand and unwavering OPEX that is slated to continue will skew LMFB earnings’ negatively. Furthermore, the revenue weakens from the competitive environment of prices from its competitors i.e. Hume, CIMA, Tasek and YTL Cement.

Recommendation. Based on that, we maintain our SELL recommendation with a TP of RM3.80 per share by pegging our FYE18 EPS of 13.8 sen to PER multiple of 27.5x reflecting its 3-year historical average.

Source: MIDF Research - 4 Dec 2017