Earnings beat to continue driving optimism

Affin Huang, Investment Bank, May 24, 2024
Analyst, Andrew Lim

Malayan Cement
Target Price: RM 6.55

9MFY24 above expectations 
MCEMENT’s 3QFY24 core net profit was RM144m (+21% qoq, 2.7x yoy), bringing 9MFY24 earnings to RM348m, forming 80% of our previous full-year estimate of RM436m (87% of consensus). We have stripped off RM43m worth of EI which comprised largely of share option expenses which management has clarified are a one-off. The results are above our expectations as 4QFY24 should register marginally stronger profits from better sales volumes. We gather from construction players that the average selling price for bulk cement in the reported quarter was sustained at RM380/mt. Sales volume for the quarter is estimated to have fallen slightly qoq to around 2.2m tonnes (from 2.3m tonnes), which we gather from management was due to slower activity days from the Lunar New Year. 

Earnings momentum likely to be sustained in the coming quarters
Our FY24E-26E earnings estimates are raised by 17-18% to reflect a better-thanexpected margin spread amidst favourable coal prices (Indonesian coal benchmark). We expect 4QFY24 earnings to come in slightly stronger in the RM150m-RM165m region, bringing FY24 earnings within our revised estimate. Looking beyond 2024, we should see some improvements in cement sales volume should demand from major infrastructure projects kick in alongside potential export opportunities to Sarawak.

Maintain BUY with a higher 12-month target price of RM6.55 (from RM5.70)
Following our earnings forecast revisions, rollover of the base year to CY25E, and increasing our BVPS target to 1.3x (from 1.2x), our PB-derived TP is raised to RM6.55. Our BVPS multiple is now 2SD above its 5-year mean to reflect the strong margin expansion experienced by the cement industry. We remain positive on the stock due to the sector’s pricing power, a much more favourable cost environment, and a potentially improved sales volume trajectory. Key downside risks include: i) increased pricing competition; and ii) higher coal prices.