• 1QFY6/24 results were above our expectations, with strong volume growth of 14% qoq as ASPs remained stable.

• Promising prospects ahead, once large infrastructure projects are rolled out.

• Reiterate Add with unchanged TP of RM5.55, based on DCF.

1QFY6/24 Off to a Great Start

• Malayan Cement (MCement) delivered a 1QFY6/24 core net profit of RM93m (>100% yoy and +18% qoq) which accounted for 39% of our and 46% of Bloomberg consensus’ estimates. We deem this to be above expectations, thanks to higher revenue and EBITDA margins.

• 1QFY6/24 revenue showed a 34% yoy and 14% qoq increase to RM1.1bn due to higher volumes and greater stability in selling prices for both domestic cement and ready mixed concrete. Given the more stable pricing environment, most of the qoq growth in revenue of 14% in 1QFY6/24 had been volume driven for both cement and ready-mixed concrete.

• At the pretax profit level,1QFY6/24 rose 23% qoq to RM155m on the back of higher revenue, as stabilisation in ASP moderated the impact of higher energy costs.

• No dividend was declared for the quarter, as expected. We expect a 9 sen payout for FY24F (vs. 6 sen for FY23).

Prospects Promising Once Major Infra Projects Are Rolled Out

• In our view, cement industry prospects will look brighter in 2024F as we expect key projects, such as MRT 3, Bayan Lepas LRT, and possibly HSR, to be rolled out or approved next year. We estimate that all three projects have a combined value of c.RM90bn. Assuming cement accounts for 5% of total construction cost, we estimate these projects could result in additional demand of RM4.5bn over the next 5-6 years.

• Apart from the projects above, Budget 2024 outlined the government’s focus on the Pan Borneo Sabah Phase 1B (RM15.7bn), Sabah Sarawak Link Road Phase 2 (RM7.4bn), widening of PLUS Highway from four to eight lanes from Sedenak to Simpang Renggam (RM931m), as well as Penang LRT to link the island to Seberang Perai (RM10bn). We expect all these projects to further boost cement demand in the next few years.

• MCement’s prospects in Singapore also look very promising, in our view, where mega projects such as Changi Terminal 5 (S$10bn), Integrated Resorts Expansion (S$9bn), Tuas Megas Port (S$20bn) and MRT Projects ($57bn), are expected to be awarded over the next few years.

Reiterate Add, TP of RM5.55

• We reiterate our Add rating and DCF derived TP of RM5.55 (WACC 7.6%, TG 3%).

• Since YTL Cement was acquired in May 2019, quarterly EBITDA hit a peak in 1QFY6/24 of RM278m. MCement now trades at a CY24F EV/EBITDA of 9x and 0.8x BV, which we think is inexpensive given its 2-year EPS CAGR of 27% (FY23-FY26F).

• Key downside risks are slowing property demand and delays in the award of key infrastructure projects, such as MRT 3 and Bayan Lepas LRT. Key rerating catalysts are faster-than-expected rollout of key projects and stronger-than-expected property sales

Source: CGS-CIMB Research - 23 Nov 2023