KEY INVESTMENT HIGHLIGHTS

• FYE changed from 31 December to 30 June

• Revenue shrank to RM357.9m (-33.6%yoy) in 1QFY20

• Losses narrowed to -RM29.4m (+8.4%yoy) in 1QFY20

• Revised FY20 earnings estimate lower on the likelihood of domestic cement demand continues its downtrend trend

• Maintain NEUTRAL call with revised TP of RM2.70 (from RM3.29)

FYE of the group has been changed from 31 December to 30 June. We noted that the next set of audited financial statements shall be for a period of eighteen months from 1 Jan 2019 to 30 June 2020. The comparison we inferred below was for reference on its year-on-year performance.

Revenue shrank. Malayan Cement’s revenue declined -33.6%yoy to RM357.9m in 1QFY20. The on-year decline was driven by (1) the continued decline in domestic cement demand, and (2) exacerbated by the implementation of Movement Control Order (MCO) on 18 March 2020 to curb the spread of COVID-19.

Losses narrowed. We learnt that Malayan Cement has undertaken robust cost cutting measures and rationalises its manpower in order to mitigate the impact of the lower domestic cement demand. Thus while the Group’s 1QFY20 earnings remain in the red, its losses narrowed by +8.4%yoy to -RM29.4m. In reference to our FY20 forecast, despite the lower losses in 1QFY20, it still came in below both our and consensus expectations.

Earnings adjusted lower. The weakness in demand prompts us to revise our fiscal assumptions. Accordingly, we slashed our FY20 earnings estimate downward from RM25.2m to -RM140.2m. We arrived at the new estimate after taking into account the likelihood of domestic cement demand continuing its downtrend trend.

Recommendation. Altogether, we maintain our NEUTRAL

recommendation with an adjusted TP of RM2.70 (from RM3.29). Our target price was adjusted lower as we ascribe the FY20 BVPS to PBV of 0.9x (from 1.1x). The multiple represents the Group’s 2-year historical PBV.

Source: MIDF Research - 17 Jun 2020