KUALA LUMPUR (Nov 10): RHB Research Institute is maintaining its Underperform on Lafarge Malayan Cement as competition heats up in the domestic market.
It said on Thursday Lafarge estimates domestic cement demand to grow by 6%-8% in 2011 and 3%-5% in 2012, underpinned by key on-going large-scale infrastructure projects.
'Rebates given by cement players have surprisingly trended higher recently, while margins are under pressure due to high coal prices and hike in electricity tariff. The higher rebates mainly reflect increased competition in the industry, as certain players are trying to capture additional market share ahead of the imminent capacity expansion in the industry by mid-2013,' it said.
RHB Research said Lafarge has no plans to increase production capacity, but is looking for ways to de-bottleneck its production process. With minimal capex spending going forward, Lafarge's strong operating cashflow will be sufficient to support its dividend payout (estimated 34sen/share in FY11, translating to a decent yield of 4.9%).
'We cut our FY11-13F earnings forecasts by 3-7%, having adjusted our domestic cement demand growth assumptions, domestic vs. export sales ratio, domestic net selling price, and coal price assumptions.
'Indicative fair value is reduced to RM6.02 (from RM6.36) based on 14x revised FY12/12 EPS of 43.0 sen, in line with our one-year forward target PER for the cement sub-sector,' it said.
It said on Thursday Lafarge estimates domestic cement demand to grow by 6%-8% in 2011 and 3%-5% in 2012, underpinned by key on-going large-scale infrastructure projects.
'Rebates given by cement players have surprisingly trended higher recently, while margins are under pressure due to high coal prices and hike in electricity tariff. The higher rebates mainly reflect increased competition in the industry, as certain players are trying to capture additional market share ahead of the imminent capacity expansion in the industry by mid-2013,' it said.
RHB Research said Lafarge has no plans to increase production capacity, but is looking for ways to de-bottleneck its production process. With minimal capex spending going forward, Lafarge's strong operating cashflow will be sufficient to support its dividend payout (estimated 34sen/share in FY11, translating to a decent yield of 4.9%).
'We cut our FY11-13F earnings forecasts by 3-7%, having adjusted our domestic cement demand growth assumptions, domestic vs. export sales ratio, domestic net selling price, and coal price assumptions.
'Indicative fair value is reduced to RM6.02 (from RM6.36) based on 14x revised FY12/12 EPS of 43.0 sen, in line with our one-year forward target PER for the cement sub-sector,' it said.
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