Lafarge Malayan Cement Bhd
(June 6, RM7.10)
Maintain neutral at RM7.07 with a target price of RM7.20: The entire product line is made up of cement, aggregates and concrete, and the bulk of the demand is from projects like klia2, Tanjung Bin expansion and Jana Manjung power plants. Despite the shutdown of the plants in Kanthan (4.17 mmt) and Langkawi (5.37 mmt), Lafarge’s 1QFY12 net profit rose 25% y-o-y to RM64.8 million. Higher net profit was due to increasing levels of efficiency following the lower maintenance cost and efforts to improve cement plant performance.

With 250 researchers hired to work on R&D and raise the level of efficiency, Lafarge expects its overall productivity to improve and at the same time reduce costs. One of the continued efforts to reduce production cost is to use alternative fuel and petroleum coke as a substitute to the main raw material coal. Nonetheless, Lafarge could still use coal given the softening of coal prices, seen to be providing great comfort. Newcastle Coal price is currently trading at US$91.80 (RM291.92) per tonne, down by 22% y-o-y. Coal, electricity and fuel account for about 50% of Lafarge’s total production costs.

We reiterate our view that price competition faced by cement players due to overcapacity could be mitigated by the stronger demand from infrastructure and property activities. We believe demand will firm up further in 2H12 when projects awarded in early 2012 are implemented in 2H12. Among the key projects are MRT1 elevated packages, expansion of Tanjung Bin and Jana Manjung power plants. We reiterate our cement demand growth projection of 8% in 2012.

It is important to note that Lafarge is not merely a cement supplier. Instead it provides customers a “one-stop” solution by offering an integrated solution on each of its clients’ project. For instance, Lafarge was awarded a contract to supply 20,000 cu m of mass concrete to KL Sentral Lot A, CIMB Tower. This project requires temperature control for fresh concrete at the site to be below 30°C with a maximum peak temperature of 75°C. — MIDF Research, June 6


This article appeared in The Edge Financial Daily, June 7, 2012.