KEY INVESTMENT HIGHLIGHTS

• 1QFY25 core net profit rose +53.8%yoy to RM144.5m; slightly ahead of expectations
• Cement operating profit grew +12.5%yoy; Aggregates and concrete operating profit surged 5.8x
• FY25 demand to continue being driven by private sector with industrial projects such as warehouses and DCs
• Maintain BUY with an upgraded TP of RM6.81

Exceed expectations. Malayan Cement kicked off 1QFY25 on a strong note with a +53.8%yoy increase in its core net profit to RM144.5m, attributable to stronger earnings from both the cement and concrete divisions. This came in slightly ahead of expectations, making up 30.8% of our and 30.0% of street's full year estimates.

Cement segment. While cement saw a decline in revenue during the quarter by -6.3%yoy to RM825.9m due to slightly weaker sales volume, operating profit grew +12.5%yoy to RM212.6m, attributable to improved operational efficiency. Management guided that both the volume, cement prices and costs remained stable.

Aggregates & concrete segment. The segment was the star performer this quarter, with a +29.3%yoy growth in revenue to RM344.5m while operating profit grew 5.8x to RM38.9m. Selling prices grew about 6%yoy and demand remained robust from the industrial segment, coming from the construction of data centres, factories and warehouses.

Private sector to continue driving demand. We expect FY25E to continue being driven by the private sector, with projects such as warehouses, data centres and residential projects. On the civil side, we expect projects such as the Penang LRT, airport expansions and other projects under Budget 2024 such as roads, schools and hospitals to drive demand.

Earnings estimates. We are maintaining our earnings forecast, on the back of expectations that a stronger 1HFY25 will make up for a slightly weaker 3QCY25 (January to March) which is usually a slower quarter due to festivities and Feb being a shorter month.

Target price. We are upgrading our TP to RM6.81 from RM6.60 previously as we roll forward our valuation base year to FY26F, pegging the group's EPS of 26.2 sen to its two-year mean PER of 26x.

Maintain BUY. Malayan Cement is among our top picks for the construction sector, being the main direct beneficiary of the pickup in the sector, which is expected to be driven by a strong pipeline of jobs, both civil and private. All factors considered; we reiterate our BUY recommendation on Malayan Cement.

Source: MIDF Research - 27 Nov 2024