• Keep BUY and MYR7.18 TP, 30% upside and 2% FY25F (Jun) yield. FY24 earnings came in within our expectations but exceeded Street’s. We remain positive on the cement industry overall and continue to like Malayan Cement as one of the direct beneficiaries of the resurgence in construction and property activities – this is given LMC’s position as Malaysia’s largest cement producer. We maintain our call, which is pegged to an unchanged 17x P/E (FY25F EPS) or 0.5SD above its historical mean.
   
• Met expectations. 4QFY24’s core net profit of MYR149.3m (+3.6% QoQ, 65.1% YoY) brought full-year earnings to MYR510.7m (>100% YoY), ie within our estimates but beat Street’s – accounting for 99% and 114% of full- year forecasts. FY24 revenue saw a commendable growth of 18.3% from the improvement in sales volumes for both cement and ready-mixed concrete. Margins-wise, PBT margins improved by 7.8% on the moderation in coal prices and better operational efficiencies. On a quarterly basis, revenue dropped 5.2% due to slower domestic cement sales. A DPS of MYR0.06 was declared, bringing full-year DPS to MYR0.10.
   
• Cement ASP. Bulk cement prices have stabilised and continue to sustain at MYR380/tonne as of July (+1.1% YoY). Note: The 3-year average of bulk cement prices for 2019-2021 stands at c.MYR216.80/tonne. The coal price softening trend has also stabilised, with average Newcastle and Rotterdam coal prices in 2Q showing moderate QoQ rebounds of 8.3% (-5.8% YoY) and 10.7% (-2.3% YoY). Prices remain manageable at below USD155 and USD130/tonne, significantly lower than the peaks seen in 2022, ie USD463 and USD392/tonne. We think cement ASPs will continue to sustain at this level, as coal is the major cost for LMC’s cement production.

• Outlook. We anticipate medium- to-long-term cement demand to be supported by major infrastructure projects, eg Kuala Lumpur-Singapore High-Speed Rail, Johor-Singapore Rapid Transit System and Mass Rapid Transit 3, as well as potential developments within the Johor-Singapore Special Economic Zone. Given the anticipated wave of infrastructure projects domestically, LMC is in a sweet spot to enjoy the spillover benefits.

• Earnings unchanged. As results met our expectations and cement ASPs continue to stabilise, we keep our FY25F-26F earnings and introduce FY27F earnings of MYR601.7m. Our MYR7.18 TP is pegged to an unchanged 17x P/E (FY25F EPS), reflecting a premium compared to its regional cement peers’ 14x – this is in anticipation of the forthcoming infrastructure projects in the country and potential expansion of LMC’s presence in East Malaysia. A 2% ESG discount is baked in. Key risks include raw material costs inflation, a broad economic slowdown that tapers off construction activities, and a softening in cement and ready-mixed concrete ASPs.

Source: RHB Research - 22 Aug 2024