LMC’s 2Q net profit rose  50%  q-o-q  to  MYR81.4m  but  the  1H13  profit made up only 33.6/36.8% of street/our estimates. While we concur with Management’s upbeat outlook  on  2H,  the  prolonged  price  competition prompts  us  to  cut  our  domestic  cement  price  estimate  by  MYR10  per tonne  for  FY13/FY14  as  well  as  our  profit  estimates  by  15.9%/9.6%. Trimming  our  FY14F  P/E  to  20x  from  22x,  our  new  FV  is  MYR8.78. Maintain NEUTRAL.    
 
- Profit  improves.  Lafarge  Malayan  Cement  (LMC)’s 2Q13 net profit surged 50% q-o-q to MYR81.4m, but its 1HFY13 earnings accounted for only  33.6%/36.8%  of  street/our  estimates.  Management  attributed  the 2Q  improvement  to  higher  sales  and  margins  at  its  aggregates  and concrete division. According to market intelligence, the recent closure of a  few  older  Klang  Valley  quarries  had  driven  up  the  demand  for aggregates from the remaining quarries, resulting in a supply constraint, which  boosted  selling  prices.  That  said,  the  slow  start  in  1Q,  coupled with  lower  domestic  cement  selling  prices  due  to  larger  discounting  in light of the stiff competition, resulted in a weaker than expected 1H.   

- A better 2H? Management remains hopeful on the outlook for the rest of 2013, driven  by  infrastructure and  property  developments.  In  our sector note post the May general elections, we highlighted that the  anticipated growth  in  cement  demand  should  partly  absorb  the  additional  supply from  new  players.  Nonetheless,  we  are  lowering  our  average  selling price  (ASP)  assumption  by  MYR10/tonne  for  the  next  two  years,  which translates into 15.9%/9.6% earnings cuts for FY13/FY14.  

- Maintain NEUTRAL, with lower FV. We continue to like cement stocks in  an  oligopoly  market  and  expect  the  ruling  Barisan  Nasional  to  revive previously  announced  projects,  which  together  with  potential  new projects,  should  strengthen  demand  for  basic  materials.  Nonetheless, LMC’s  poor  results,  coupled  with  the  lower  valuations  of  its  regional peers  after  the  recent  selldown,  prompts  us  to  cut  our  FY14F  P/E multiple from 22x to 20x (still ~15% premium to regional peers), to derive a lower FV of MYR8.78 (from MYR10.70). Maintain NEUTRAL.   

Source: RHB