INVESTMENT HIGHLIGHTS

• Gloomy results from an oversupply glut

• Unwavering OPEX acerbated tepid earnings

• Unchanged forecast for FYE18/FYE19

• Nonetheless we reaffirm our SELL stance with a TP of RM3.80

Gloomy results from an oversupply glut. LaFarge’s FY17 earnings of -RM215m (-380.8%YoY) registered a gloomy result accounting for a dismal -295.4% of ours and 100.0% of Street’s estimates. Its FY17 revenue revealing dwindling revenue from industry’s cement supply glut from RM2.55bn in FY16 to RM2.24bn in FY17 (-11.9%YoY).

Unwavering OPEX acerbated tepid earnings. Lafarge’s bottom line is hit by two lethal doses of injection namely; (i) industry-wide oversupply and (ii) operating expenses. Projects such as KVMRT2 and upcoming MRT3 applying more pre-cast materials in the construction process. Generally, pre-cast materials require less cement, furthermore - competitors giving higher rebates and longer credit duration. OPEX for Lafarge remains a conundrum as it business survival rate depends on OPEX reduction of at least 40.0%.

Unchanged forecast for FYE18/FYE19. We maintain our forecast for FYE18/FY19 premised on the stable rate of average selling price despite the cement supply glut in Peninsular Malaysia.

Recommendation. Altogether, we maintain our SELL recommendation with a target price of RM3.80 per share based on DCF (WACC: 8.0%).

Source: MIDF Research - 26 Feb 2018