Lafarge posted a poorer 9M15 net profit of MYR207.7m. Reiterate SELL with a lower MYR7.60 TP (17% downside), after cutting our FY15-17earnings estimates by 7.6-9.1%. Weaker construction activities in the remainder of this year may translate to lower cement sales tonnage and ex-gate prices, in our view. We expect the next wave of construction activities to only pick up gradually from 2H16.

Poorer 9M15. Lafarge Malaysia’s (Lafarge) 9M15 net profit of MYR207.7m was short of our/consensus estimates. Had it not been an unrealised forex gain of MYR21.6m, the results could have been worseoff. We suspect stiff competition among cement players may have led to manufacturers offering larger bulk discounts. Apart from that, its 33.33%-owned Alliance Concrete Singapore Pte Ltd and concrete division also incurred a share of loss of MYR7.2m and operating loss of MYR2.8mrespectively, vs small profits for both units in 9M14.

Bumpy road in the near term. We expect the 2.25 sen/kilowatt-hour (kWh) power tariff reduction from 1 Mar-31 Dec 2015 to lower its production cost. Construction activities normally pick up pace from 2Q onwards, but the seasonal pick-up this year has been weaker than weoriginally anticipated. This is because most civil works for key infrastructure and property development projects are close to the tail-end of construction, with cement usage low at this stage. In our view, Lafarge’s board may have turned more vigilant on the near-term outlook, as it only declared a total interim DPS of 24 sen vs 26 sen in 9M14.

SELL with a lower MYR7.60 TP. Given stiffer-than-expected competition, we lower our realised cement selling price by MYR5 per tonne for the next three years (see Figure 4). This accordingly lowers our FY15-17 earnings estimates by 7.6-9.1% respectively. Our TP, which is derived from 21.6x FY16 P/E, or +2SD from its 5-year historical trading range, is reduced to MYR7.60 (from MYR8.27). The high P/E is justifiable as Lafarge remains the best proxy to the n ext wave of government infrastructure and affordable housing projects, which will be implemented under the 11thMalaysia Plan in 2016-2020. However, the potential downside of 17% has prompted us to reiterate our SELL call.