INVESTMENT HIGHLIGHTS

• Losses swelled in 4QFY18, extending losses for the full year

• Operational environment not so favorable to business

• Losses could prolong, if demand were still grim

• Downgrade to SELL with a lower TP of RM1.60

Losses swelled. The group’s 4QFY18 earnings remained in the red. However, losses were seen moderating to -RM57.5, a notable improvement of +47.4% in comparison to the same period last year. Cumulatively, it extended previous quarterly losses to -RM319.4m in 12MFY18. In reference to our FY18 estimate, the negative quantum was largely in-line with our and consensus expectations at 104.0% and 104.4% of full year estimates respectively.

Operational environment not so favorable to business. The on-year decline in 12MFY18 was driven by weaker revenue (-5.6%yoy). Positively, the drop was partially offset by lower S&D expenses, which has improved by -9.4%yoy. During the same period, the cost of sales climbed +2.2%yoy, underpinned by higher energy prices coupled with lower production output. On revenue, the decline was derived from declining offtake of ready mixed concrete from major projects nearing completion. We learned that export sales were better, which have helped to compensate the weaker domestic demand. Going ahead, strong competitive landscape in the face of oversupply is not going to bode well for the business.

Losses could prolong, if demand were still grim. This adverse market condition may not end so soon for cement producer. We take caution of the current environment in local construction industry, which has experienced delay in progress rate (especially infrastructure projects) due to cost revision.

Source: MIDF Research - 28 Feb 2019