• Still BUY, new MYR5.65 TP from MYR 4.87, 17% upside. 1HFY24 (Jun) earnings were above expectations at 85% and 70% of our and Street’s full- year estimates. The topline performance and margins surge were attributable to improved volumes, and cement and concrete ASPs, and reduced coal costs. Our positive outlook for the cement industry persists, and we continue to view Malayan Cement favourably as the direct beneficiary amidst the revival of construction and property activities in West Malaysia.

• 1H24 earnings surprised Street yet again. 2QFY24’s core net profit came in at MYR117.7m (+33% QoQ, >100% YoY). This brought the 1HFY24 figure to MYR 206.3m (>100% YoY), ie above our and Street’s expectations, which account for 85% and 70% of the full-year forecasts. 2QFY24 revenue continued to remain steady at MYR1,158.6m (+0.9% QoQ, +29.2% YoY), attributable to the improvements in sales volume and ASPs for domestic cement and ready-mixed concrete. With coal prices easing in 2QFY24, PBT continued its upwards trajectory, growing by 21.4% QoQ (7x YoY). The growth in cement volumes were mainly driven by logistics facilities, as well as infrastructure, data centre, and residential projects.

• Cement ASPs and outlook. Bulk cement prices have stabilised and continue to sustain at MYR380/tonne as of Jan (-2.2% YoY). Note: The 3-year bulk cement price average for CY19-21 stands at c.MYR216.80/tonne. With the slew of anticipated infrastructure projects in Malaysia, building material players – particularly cement producers – are seen as key beneficiaries of the country’s infrastructure wave. The Sarawak State Government has already taken steps to strengthen its cement supply chain with Innocement (a JV between Sarawak Economic Development Corp or SEDC and Bintulu Development Authority) inking MoUs with YTL Cement and Thailand’s SCG International – a Siam Cement (SCC TB, BUY, TP: THB340) unit – in Jul 2023.

• As LMC’s results exceeded our expectation, we raised FY24F-26F earnings by 40-62% based on our anticipation that it will sustain its exceptional performance in the mid to long term. Our TP is now MYR5.65 after factoring in a 2% ESG discount due to the 2.9 ESG score falling below the 3.0 country median. We ascribe a P/E multiple of 18x to its FY24F earnings, reflecting a premium vis-à-vis its cement peers’ 14x – in anticipation of forthcoming infrastructure projects and potential expansion of LMC’s presence in East Malaysia. We continue like the company as one of the direct beneficiaries of the resurgence in construction and property activities, given its position as the largest cement brand in Malaysia. Key risks include raw material costs inflation, a broad economic slowdown (that will taper off construction activities), and a softening in cement and ready-mixed concrete ASPs.

Source: RHB Research - 23 Feb 2024