• Keep BUY, new MYR6.59 TP (from MYR7.18), 42% upside with c.3% FY25F (Jun) yield. 1QFY25 earnings were in line with our expectations, with Malayan Cement recording solid double-digit YoY growth. The surge in topline performance was driven by higher demand for ready-mixed concrete. We maintain a positive outlook on the cement industry and continue to favour LMC as a key beneficiary of the recovery in construction and property activities, given its position as Malaysia’s largest cement producer.

• Within expectations. 1QFY25 core net profit of MYR144.5m (-3.2% QoQ, 53.1% YoY) met our estimates but was slightly ahead of Street’s, at 28% and 30% of full-year forecasts. Revenue grew by 1.9% YoY, driven by stronger sales in aggregates and concrete (+29.3% YoY), with higher selling prices which offset weaker cement sales. Net margin improved by 4ppts YoY, supported by enhanced operational efficiencies and lower production costs. QoQ, revenue rose by 12.4% from the low base during the festive season. However, core net profit declined sequentially, primarily due to higher tax expenses resulting from the non-deductibility of certain interest expenses.

• Cement ASPs. Bulk cement prices have stabilised since Jul 2023, remaining at MYR380/tonne as of October. Note that the 3-year average of bulk cement prices for 2019-2021 is c.MYR216.80/tonne. Coal prices have also stabilised, with average Newcastle and Rotterdam coal prices in 3Q showing moderate QoQ rebounds of 3% (-6% YoY) and 1.7% (-1.9% YoY). Prices remain manageable at below USD155 and USD130/tonne, significantly lower than the peaks seen in 2022 (USD463 and USD392/tonne). We think cement ASPs will sustain at this level, as coal is the major cost for LMC’s cement production.

• Outlook. We expect cement demand to be driven by key projects such as the Penang Light Rail Transit (LRT), West Ipoh Span Expressway, and the reinstatement of five LRT3 stations, along with robust demand for industrial projects and property developments – particularly high-rise projects in the Klang Valley. These projects are likely to fill in the gap between the end of the cement supply contract for the East Coast Rail Link (ECRL) project (end- CY24) and the Mass Rapid Transit 3 (MRT3), which is only expected to begin construction in 2027.

• Forecasts. As results met our expectations, we keep our FY25-27 earnings forecasts. However, we cut our TP to MYR6.59 after updating the share base following a housekeeping exercise. Our new TP (includes a 2% ESG discount) is based on an unchanged 17x P/E (FY25F EPS), at a premium to regional cement peers’ average of 12x, supported by anticipated infrastructure projects in the country and the potential expansion of LMC’s footprint in East Malaysia. Key risks: Rising raw material costs, a broader economic slowdown, and weakening ASPs for cement and ready-mixed concrete.

Source: RHB Securities Research - 27 Nov 2024