Malayan Cement Ending FY23 With a Bang

RHB, August 25, 2023

Still BUY, new MYR4.43 TP from MYR3.93, 15% upside. FY23 (Jun) earnings were above expectations, at 111% and 122% of our and consensus’ full-year estimates. Our new TP is based on 30.5x P/E (+1SD from the 2-year mean) as we expect Malayan Cement to remain profitable, given the positive developments in the construction and property sectors. LMC is a direct beneficiary of the revival of activities in these sectors in West Malaysia. The group has declared a dividend of 6 sen per share.

FY23 earnings surprised Street again. 4QFY23 core net profit of MYR77.2m (+20.9% QoQ; +146.6% YoY) brought the full-year figure to MYR154.3m (+104.7% YoY). Revenue saw steady growth of 2% QoQ and 25.6% YoY from improvements in sales volumes and ASPs for both domestic cement and ready-mixed concrete. Coupled with coal prices easing during the quarter, PBT grew 27.7% QoQ and 126.6% YoY.

Cement ASP trend. Bulk cement prices remained elevated, up 1.1% MoM and 20.3% YoY to MYR380/MT as of July, while YTD average ASPs are still at c.MYR380/MT. Note that the 3-year average for bulk cement prices (CY19-21) is MYR216.80/MT. With coal prices down 73% from its peak, we
think cement ASPs will also trail behind and soften gradually in the long term, as coal constitutes c.50% of LMC’s total COGS in cement production.

Outlook is intact, with positive news flow from the construction sector. We expect medium- to long-term cement demand to be buoyed by the rollout of major infrastructure projects such as the Kuala Lumpur-Singapore High Speed Rail, Johor Bahru-Singapore Rapid Transit System, Bayan Lepas Light Rail Transit, and Mass Rapid Transit 3 (MRT3). We are also upbeat on the MoU with Innocement (a JV between Sarawak Economic Development Corp and Bintulu Development Authority) to support the surge in the state’s cement demand, thanks to the 960 projects (valued at c.MYR46bn) allocated for infrastructure development. We have yet to factor in the earnings potential from this, as we await further details.

Earnings unchanged. We switch our valuation basis to a P/E multiple of 30.5x (+1SD from 2-year mean) as we are upbeat on positive developments in infrastructure and property projects. Our TP includes a 2% ESG discount.
We maintain our BUY call, as LMC is a direct beneficiary of the revival of construction and property activities, as Malaysia’s largest cement player (c.65% market share).

Risks: Raw material cost inflation, broad economic slowdown that impacts construction activities, and a softening in cement and ready-mixed concrete ASPs.