Stock Name: LMCEMNT
Company Name: LAFARGE MALAYAN CEMENT BHD
Research House: MAYBANK
Lafarge Malayan Cement Bhd
(June 22, RM6.52)
Maintain hold at RM6.65 with target price of RM6.40: Share price remains firm (+6% year-to-date) despite poor 1Q10 results. Although Lafarge has the potential for a capital repayment, we think it may be too early to buy the stock because: (i) domestic cement demand has yet to show a clear rebound, and demand optimism has had false starts in the past; and (ii) capital repayment might materialise only in 2011. We maintain our hold rating and target price of RM6.40 (12 times 2011 PER).
Poor 1Q10 results (earnings before interest, tax, depreciation and amortisation: -31% year-on-year,-41% quarter-on-quarter) was mainly due to non-recurring plant repair and cost-cutting measures. We expect earnings to recover gradually in 2Q10 and normalise from 3Q10 onwards, given that: (i) the plant will be back to its optimal efficiency level by 3Q10; and (ii) the cement price hike (+9%) in May 2010 more than compensates for coal cost inflation. We cut our 2010 EPS by 16%, imputing the one-off plant repair, while our EPS for 2011-2012 is retained.
A capital repayment could be declared as early as February 2011 (in conjunction with its 4Q10 results) because even without gearing, our estimate of net cash by end-2010 is 25 sen per share, after normal annual dividends. In 2007, the company regeared to net gearing level of 20% to make a capital repayment of 20 sen per share in 2007 (RM566 million).
Our expectation of capital repayment is also supported by its French parent's (Lafarge SA has a 62% stake in Lafarge) net debt of '14.6 billion. Additionally, Lafarge SA also posted an ex-EI loss of '73 million in 1Q10 (versus a loss of '17 million in 1Q09), largely dragged down by its North American business. Quarterly DPS. Lafarge paid a maiden first quarter dividend in 1Q10, indicating it is moving towards quarterly dividend payments. As long as the cement industry remains closed and price consensus holds, cement manufacturing will remain a cash-cow business. However, we are only inclined to upgrade the stock to a buy when the timing of capital repayment is clearer, demand growth is more visible, or valuation is more appealing. ' Maybank IB Research, June 22
This article appeared in The Edge Financial Daily, June 23, 2010.
Company Name: LAFARGE MALAYAN CEMENT BHD
Research House: MAYBANK
Lafarge Malayan Cement Bhd
(June 22, RM6.52)
Maintain hold at RM6.65 with target price of RM6.40: Share price remains firm (+6% year-to-date) despite poor 1Q10 results. Although Lafarge has the potential for a capital repayment, we think it may be too early to buy the stock because: (i) domestic cement demand has yet to show a clear rebound, and demand optimism has had false starts in the past; and (ii) capital repayment might materialise only in 2011. We maintain our hold rating and target price of RM6.40 (12 times 2011 PER).
Poor 1Q10 results (earnings before interest, tax, depreciation and amortisation: -31% year-on-year,-41% quarter-on-quarter) was mainly due to non-recurring plant repair and cost-cutting measures. We expect earnings to recover gradually in 2Q10 and normalise from 3Q10 onwards, given that: (i) the plant will be back to its optimal efficiency level by 3Q10; and (ii) the cement price hike (+9%) in May 2010 more than compensates for coal cost inflation. We cut our 2010 EPS by 16%, imputing the one-off plant repair, while our EPS for 2011-2012 is retained.
A capital repayment could be declared as early as February 2011 (in conjunction with its 4Q10 results) because even without gearing, our estimate of net cash by end-2010 is 25 sen per share, after normal annual dividends. In 2007, the company regeared to net gearing level of 20% to make a capital repayment of 20 sen per share in 2007 (RM566 million).
Our expectation of capital repayment is also supported by its French parent's (Lafarge SA has a 62% stake in Lafarge) net debt of '14.6 billion. Additionally, Lafarge SA also posted an ex-EI loss of '73 million in 1Q10 (versus a loss of '17 million in 1Q09), largely dragged down by its North American business. Quarterly DPS. Lafarge paid a maiden first quarter dividend in 1Q10, indicating it is moving towards quarterly dividend payments. As long as the cement industry remains closed and price consensus holds, cement manufacturing will remain a cash-cow business. However, we are only inclined to upgrade the stock to a buy when the timing of capital repayment is clearer, demand growth is more visible, or valuation is more appealing. ' Maybank IB Research, June 22
This article appeared in The Edge Financial Daily, June 23, 2010.
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