We keep our NEUTRAL rating on Lafarge with a MYR9.52 TP on its rich valuation and limited upside potential (3%). Meanwhile, we applaud management’s effort to move the company towards offering more product solutions, although it may take a while before the products are well-accepted by the market. Also, we are concerned that further strengthening of the USD may raise its production cost.

• Post results briefing. Yesterday, we attended Lafarge Malayan Cement’s (Lafarge) post-results briefing at its construction development lab. Management was happy that the realised selling price of cement has stabilised in 1Q15. On top of that, the company benefited from a slight reduction in its cost of production and the rush of purchases prior to the Good and Services Tax (GST) implementation.
• Becoming a solutions provider. The briefing ended with a tour of the lab. Many attendees were impressed with the special cement solutions the company has developed to better cater to various construction needs. Lafarge is now focusing on introducing these products to the market, which would enable it to ride on the Government’s effort to build up to 606,000 affordable homes over the next few years. The new product, which will be launched soon, will be named Fastbuild and may be able to save builders ~36% in construction costs and decrease the construction period by ~84%. It will also focus on products that could replace the asphalt on roads – management claims that this could save the Government money in the longer run even though the upfront construction cost from using the products would be almost similar.
• NEUTRAL, with a MYR9.52 TP. Management is keeping its original target of putting its extended grinding capacity to work. Thus, it will take up 300,000 tonnes pa (tpa) of capacity at its Rawang facility from Jan2016 onwards, while the remaining >900,00 tpa capacity in Kanthan, Ipoh will be taken up in Jul 2016. While we believe Lafarge is moving in the right direction, it may take a while before its new products are wellaccepted by the market. We remain cognisant of the potentially negative impact of the USD appreciating further against the MYR. That, together with the limited upside and our MYR9.52 TP implying a 21.6x FY16 P/E (+2SD from its 5-year historical trading range), leads us to keep our NEUTRAL rating on the stock.