Stock Name: LMCEMNT
Company Name: LAFARGE MALAYAN CEMENT BHD
Research House: MAYBANK
Lafarge Malayan Cement Bhd
(July 5, RM6.49)
Maintain hold at RM6.60 with target price of RM6.40: French parent, Lafarge SA, is considering selling up to 11.2% of its total 62.2% stake in LMC to pare down its net debt of '14.6 billion (RM59 billion). We remain neutral on LMC as it is already trading at peak-cycle EV/tonne among Malaysian cement producers. Hence, we believe there will not be much upside to the valuation for any potential sale of a minority stake. Target price of RM6.40 (12 times 2011 PER) is retained.
Post-disposal, Lafarge SA would remain the majority shareholder, with a minimum 51% shareholding. It would also retain management control of LMC. There is no indication of who the potential buyer is yet. This stake sale, worth RM628 million based on last Friday's closing price, is part of Lafarge SA's 2010 divestment programme.
In June 2009, there were news reports that Indonesia's largest cement maker, PT Semen Gresik (Gresik), planned to acquire Cement Industries Malaysia Bhd (CIMA). Gresik indicated that it had set aside more than IDR3 trillion (RM1.25 billion) for a 2-3mmt local cement maker (size of CIMA or Tasek), but no such transaction has occurred. We do not think Gresik is the potential buyer for a minority stake in LMC as: (i) Gresik should be looking for a controlling stake to create synergy with its group; and (ii) given that Gresik exports its extra capacity and is ramping up its capacity (+26% by 2012) for domestic growth, we believe its acquisition aim is not to raise supply in the Indonesian market, but to derive a central coal procurement strategy. Among the largest four Malaysian cement makers, only LMC has an Asia-Pacific coal procurement arm, through the Lafarge Group.
Potential buyers could be the bumiputera funds, but we note that LMC was not able to meet the Foreign Investment Committee's requirement for a minimum bumiputera interest in the past, and LMC was granted an exemption for the bumiputera equity requirement in February 2009. We see little upside to its current share price, as its current peak-cycle EV/tonne valuation of US$207 is at a 74% premium to its local peers. LMC's EV/tonne discount of 28% to its Indonesian peers is also justified by a low domestic growth and overcapacity environment. ' Maybank IB Research, July 5
This article appeared in The Edge Financial Daily, July 6, 2010.
Company Name: LAFARGE MALAYAN CEMENT BHD
Research House: MAYBANK
Lafarge Malayan Cement Bhd
(July 5, RM6.49)
Maintain hold at RM6.60 with target price of RM6.40: French parent, Lafarge SA, is considering selling up to 11.2% of its total 62.2% stake in LMC to pare down its net debt of '14.6 billion (RM59 billion). We remain neutral on LMC as it is already trading at peak-cycle EV/tonne among Malaysian cement producers. Hence, we believe there will not be much upside to the valuation for any potential sale of a minority stake. Target price of RM6.40 (12 times 2011 PER) is retained.
Post-disposal, Lafarge SA would remain the majority shareholder, with a minimum 51% shareholding. It would also retain management control of LMC. There is no indication of who the potential buyer is yet. This stake sale, worth RM628 million based on last Friday's closing price, is part of Lafarge SA's 2010 divestment programme.
In June 2009, there were news reports that Indonesia's largest cement maker, PT Semen Gresik (Gresik), planned to acquire Cement Industries Malaysia Bhd (CIMA). Gresik indicated that it had set aside more than IDR3 trillion (RM1.25 billion) for a 2-3mmt local cement maker (size of CIMA or Tasek), but no such transaction has occurred. We do not think Gresik is the potential buyer for a minority stake in LMC as: (i) Gresik should be looking for a controlling stake to create synergy with its group; and (ii) given that Gresik exports its extra capacity and is ramping up its capacity (+26% by 2012) for domestic growth, we believe its acquisition aim is not to raise supply in the Indonesian market, but to derive a central coal procurement strategy. Among the largest four Malaysian cement makers, only LMC has an Asia-Pacific coal procurement arm, through the Lafarge Group.
Potential buyers could be the bumiputera funds, but we note that LMC was not able to meet the Foreign Investment Committee's requirement for a minimum bumiputera interest in the past, and LMC was granted an exemption for the bumiputera equity requirement in February 2009. We see little upside to its current share price, as its current peak-cycle EV/tonne valuation of US$207 is at a 74% premium to its local peers. LMC's EV/tonne discount of 28% to its Indonesian peers is also justified by a low domestic growth and overcapacity environment. ' Maybank IB Research, July 5
This article appeared in The Edge Financial Daily, July 6, 2010.
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