INVESTMENT HIGHLIGHTS

• The group’s 2QFY19 earnings remain in the red

• Lafarge’s revenue decreased by -11.4%yoy to RM471m, steered by lower sales both in volume and prices

• Pressure on margin likely to persist

• Earnings forecast left unchanged

• Maintain NEUTRAL stance with an adjusted TP of RM3.29

Expanded losses. The group’s 2QFY19 earnings remain in the red. While it posted a loss of -RM62.9m in the quarter, the quantum was less by -24.9%yoy compared to the loss in the same period last year. Cumulatively, it extended previous quarterly loss to the tune of – RM94.7mm in 1HFY19 accounting for 52% and 54% of ours and consensus’ respectively.

Revenue booked in 2QFY19 was lower. Lafarge’s revenue decreased by -11.4%yoy to RM471m. This drop was steered by lower sales both in volume and prices from the cement segment due to the lingering condition of weak domestic market. Positively, this was partially offset by the higher export sales. Improvements were noticeable in overall costs, driven by lower distribution costs and depreciation.

Pressure on margin likely to persist. Supply and demand environment may not be favourable in the short-term due to intensity in competition and over-supply in the market. . Accordingly, we believe these factors will remain a stumbling block for Lafarge to stage a major turnaround in the immediate term. In a wider sense, we think the current overall demand for the industry is still uninspiring.

Earnings left unchanged. We make no changes to our estimates, given that its YTD earnings came in within our expectation.

Recommendation. Altogether, we maintain our NEUTRAL

recommendation on Lafarge. Whilst the outcome on cost cutting measures seems to bear fruits now to reduce its losses, we still think that demand is still sluggish. We have adjusted our TP lower to RM3.29

as we ascribe the FY20 BVPS to PBV of 1.1 times.

Source: MIDF Research - 3 Sept 2019