Malayan Cement: Achieving New Heights; Maintain BUY

RHB, May 24, 2024

Analyst, Nai Wan Yan

Malayan Cement
BUY (Maintained)
Target Price: MYR7.18

• Keep BUY, new MYR7.18 TP (from MYR5.65), 34% upside. 9MFY24 earnings were above expectations, at 95% and 93% of our and consensus’ full-year estimates. The surge in topline and margins was attributed to volume improvements, cement and concrete ASPs, as well as lower coal costs. We maintain our positive outlook on the cement industry, and still view Malayan Cement favourably as a direct beneficiary of the revival of construction and property activities in West Malaysia. LMC has declared an interim dividend of MYR0.04/share.

• 9M24 earnings surprised Street again. 3QFY24 core net profit was at MYR154.4m (+31.2% QoQ; >100% YoY) after excluding one-off share option expenses of MYR53.8m. This brought the 9MFY24 figure to MYR372.9m (>100% YoY) – above our and Streets’ expectations, at 95% and 93% of respective full-year forecasts. 3QFY24 revenue was weaker QoQ due to the slowdown in cement production and demand amidst the festive season. 

• Cement ASP and outlook. Bulk cement prices have stabilised and are at MYR380/MT as of April (+2.9% YoY). Note that the 3-year average of bulk cement prices for CY19-21 is c.MYR216.80/MT. With the slew of anticipated infrastructure projects in Malaysia, building material players – particularly cement producers – are seen as key beneficiaries of the infrastructure wave. While we do not expect to see any bumper quarters, we believe ASPs and sales volumes should be able to sustain at the current level.

• Earnings revision. As its results exceeded our expectations and cement ASPs remain elevated, we raised FY24-26 forecasts by 22-30% after increasing our FY24-26F cement blended ASP assumption by 5-7%, trailing close to the current YTD average of MYR380/MT. Our volume assumptions are unchanged. Our TP is now MYR7.18, after factoring in a 2% ESG discount due to the ESG score of 2.9 falling below the country median of 3.0. We rolled over our valuation year to FY25F and ascribed a P/E multiple of 17x to its FY25F earnings – at a premium compared to regional cement peers’ 14.0x – in anticipation of upcoming infrastructure projects in the country and potential expansion of LMC’s presence in East Malaysia. We still like LMC as a direct beneficiary of the resurgence in construction and property activities, given its position as the largest cement brand in Malaysia. 

• Key risks to our call include raw material cost inflation, a broad economic slowdown that tapers off construction activities, and a softening in cement and ready-mixed concrete ASPs.