• U/G to BUY with new MYR 3.93 TP, 22% upside. We lifted our FY24F (Jun) earnings by 15.7% as we are optimistic on recent positive developments regarding Malayan Cement’s infrastructure and property projects. We roll over our valuation year to FY24F, and the TP is higher after increasing the P/B multiple to 0.8x from 0.6x – -1SD to the pre-COVID-19 historical mean. We upgrade our call as LMC is a direct beneficiary of the revival of major construction and property projects. Its current valuation of 0.6x P/BV is cheap when compared with regional peers’ 0.9x average.

• Cement ASPs trend. Bulk cement prices continue to remain elevated, growing 1.8% MoM and 14.1% YoY to MYR375.8/tonne as of June – while its YTD average ASPs continue to hover c.RM380/tonne. Note that the 3- years average of bulk cement prices for CY2019-21 is c.MYR216.8/tonne. While coal has underwent a sharp correction (down 73% from its peak), we think cement ASPs would follow suit and gradually soften in the longer term, as coal constituted c.56% of LMC’s total COGS in cement production.

• Rollout of major infrastructure projects would spur mid- to long-term cement demand. While cement production has tapered off from April (-38.6% MoM to 1.66m tonnes) and May (-1.8% MoM to 1.63m tonnes), we view the latest news regarding the Kuala Lumpur-Singapore High Speed Rail, Johor Bahru-Singapore Rapid Transit System, Bayan Lepas Light Rail Transit, and Mass Rapid Transit 3 projects have lifted the property and construction markets’ sentiment, signalling potential pick-ups in Peninsular Malaysia’s construction activities for the next 4-5 years. This would have a positive spillover for cement makers. As such, we raise our cement production volume assumption for FY24-25 (Fig 3) as we turn optimistic on cement and concrete demands moving forward.

• Valuation. We are now estimating core net profits of MYR174m and MYR187m after lifting our FY24-25F earnings by 13-15%, as we are upbeat on the positive development from infrastructure and property projects. We roll over our valuation year to FY24F, and our TP now incorporates a 6% ESG discount, after we increased the P/B multiple to 0.8x from 0.6x, which is -1SD to its pre-COVID-19 historical mean. As the largest cement brand in Malaysia (c.65% of market share), we believe LMC deserves a BUY call as it will benefit directly from the revival of major construction and property projects. The current valuation of 0.6x P/BV is still undemanding, compared with its regional peers’ average of 0.9x. Key risks include raw material costs’ inflation, a broad economic slowdown that will taper off construction activities, and a softening in cement and ready-mixed concrete ASPs.

Source: RHB Research - 28 Jul 2023