• Keep BUY with new MYR4.87 TP from MYR4.43, 24% upside. Malayan Cement’s 1QFY24 earnings came above expectations, representing 49% and 43% of ours and consensus’ full-year estimates. The surge in topline performance and margins were attributable to improvements in volumes, cement and concrete ASP, and reduced coal cost. Our optimism remains for the cement industry, and we continue to favour LMC as a direct beneficiary in the resurgence of construction and property development activities in Peninsular Malaysia

• 1Q24 earnings surprise. LMC’s 1QFY24 core net profit came in at MYR88.5m (+14.7% QoQ; >100% YoY). This is above ours and Street’s expectations, accounting for 49% and 43% of the full-year forecasts. Revenue recorded an impressive growth of 13.6% QoQ and 33.7% YoY to MYR1,148.1m, attributable to the improvement in sales volume and ASP for both domestic cement and ready-mixed concrete. With coal prices easing in the quarter, PBT continues its upward trajectory – growing 22.7% QoQ and an impressive 38x YoY. Cement and ready-mixed concrete volumes for the quarter exhibited an improvement of 15% QoQ and 18% YoY. The growth in cement volumes were mainly driven by industrial, data centres, and residential projects.

• Cement ASP and outlook. Bulk cement prices have sustained an impressive growth of 23.1% YoY – reaching MYR380/MT as of September – while its YTD average ASP is holding steady at c.RM380/MT. Note that the 3-years average of bulk cement price for CY19-21 stands at c.MYR216.80/MT. Our unwavering confidence in the cement industry is rooted in its inherent synergy with the construction and property sectors. We reiterate our conviction that cement demand will continue to flourish in the medium-to-long term, propelled by the initiation of major infrastructure projects in Malaysia.

• Earnings revision. As results exceeded our expectation, we raise our FY24-25F by 34-59% as we anticipate LMC to continue delivering stellar performances in the medium-to-long term – driven by the upcoming developments from infrastructure and property projects. Our TP is now MYR4.87 (incorporates a 6% ESG discount) as we lowered our PE multiples to 25x from 30.5x – on par with its regional cement peers. We continue to like LMC – the largest cement brand in Malaysia – as a direct beneficiary from the revival of construction and property development activities.

• Key risks to our call includes 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 Securities Research - 24 Nov 2023