Malayan Cement holding steady despite subdued cement market

MALAYAN Cement Bhd can expect a sustainable earnings turnaround beyond FY6/2021 premised on its continuous focus on cost efficiency and demand upsurge from resumption of construction activities, in particular revival of mega infrastructure projects.

Operational synergies and higher demand for cement and clinker demand aside, MIDF Research said the company will also benefit from the recent proposed earnings-accretive deal to speed up its profitability plan in FY6/2022 through the acquisition of profitable acquiree companies from YTL Cement Bhd.

This can be achieved through cost rationalisation and operational synergies to achieve greater economies of scale upon completion of the exercise.

“As such, we opine that continuous effective cost synergies and the steady revenue growth trajectory will be able to present an exciting earnings turnaround prospect for the group from FY6/2022 onwards,” justified analyst Ummar Fitri in a results update.

Malayan Cement managed to turnaround in its FY6/2021 financial performance with normalised earnings of RM5.6 mil (+103.0% year-on-year) which was above MIDF Research’s expectation by 5% and exceed consensus’s forecast of losses at -RM1.84 mil.

This was driven, among others, by higher cement and clinker domestic sales as well as exports on the resumption of construction activities in 3Q FY6/2021. Moving forward, MIDF Research posits that the group will potentially be able to achieve a sustainable earnings momentum in FY6/2022 and beyond.

All-in-all, MIDF Research has maintained its “buy” rating on Malayan Cement with a target price of RM3.50.

“Coupled with a potentially considerable domestic demand for the group’s products (i.e. cement, concrete and construction aggregates) from the continuation of mega public infra projects such as Mass Rapid Transit Line 3 (MRT3), Klang Valley Double Tracking Phase 2 (KVDT2) and East Coast Rail Link (ERCL) and a potential domestic KL-JB HSR (High Speed Rail) project, we postulate that these developments would bode well for the group’s revenue and earnings moving forward,” added the research house.

Meanwhile, CGS-CIMB Research also reiterated its “add” rating on Malayan Cement but with a lower target price of RM3.28 (from RM3.73 previously) in view of a prolonged weak cement demand environment.

“Completion of the YTL Cement deal in 4Q CY2021F is a potential catalyst,” opined analyst Sharizan Rosely.

“The downside risks include muted recovery in cement demand caused by (i) disruption in building material supply chain due to the enhanced MCO (movement control order) in July; and (ii) absence of new large contracts to boost cement demand and ASPs (average selling prices).

At the close of today’s mid-day trading, Malayan Cement was up 3 sen or 1.05% to RM2.90 with 190,300 shares traded, thus valuing the company at RM2.71 bil. – Sept 9, 2021

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