MIDF Sector Research

LaFarge Malaysia Berhad - Significant Drop in Opex

sectoranalyst
Publish date: Thu, 30 May 2019, 05:12 PM

INVESTMENT HIGHLIGHTS

  • Lafarge’s 1QFY19 results showed improvement, albeit at losses of -RM32.1
  • On yearly basis, revenue was little changed, contracting by a marginal -1.5%yoy
  • Moving forward, the prospect of Lafarge is largely dependent on the overall landscape of the industry
  • A takeover offer by YTL is long-term positive for the industry
  • We maintain our stance to ACCEPT OFFER at RM3.75/share Lafarge’s 1QFY19 results showed improvement, albeit at losses.

The losses seen moderating to -RM32.1, a notable improvement by +51.4% in comparison to the same period last year. In reference to our FY19 estimate, the quantum corresponded with our and consensus expectations at 11.2% and 17.7% of full year estimates respectively.

On yearly basis, revenue was little changed. In 1QFY19, it slipped by -1.5% to RM538.7m. This was largely due to lower sales from the Cement segment caused by market conditions but compensated partially by higher export sales. Despite still recording a pre-tax loss, it halved the quantum from last year to -RM41.8m. A key factor to this was attributed to the -15.7%yoy decline in distribution costs. Notably, the lower expenses overall was a result of better network route optimisation, savings from staff reductions as well vigorous cost-cutting measures, to name a few.

Outlook. Moving forward, we see the prospect of Lafarge largely depends on the overall landscape of the industry. By extension, a significant increase in demand is likely to alleviate the pressure from oversupply and overcapacity issues. The return of key infra projects could be seen as an encouraging signs that will help to reduce the pressures aforementioned. In a broader perspective, we see the acquisition of Lafarge by YTL as strategically positive, as it may help to lessen the competitive pressures in the presently challenging market.

Following the results announcements, we adjusted our estimates for FY19 and FY20. The table below summarizes our latest estimates for the group as we have factored in the overall drop in operational expenses.

Source: MIDF Research - 30 May 2019

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