Lafarge Malayan Cement BUY
Price target RM6.30
Share price at 27 Feb RM5.60
Investment summary
FY07 earnings rose +64% yoy due to tax writebacks and single-digit volume/ASP growth. Results were 10% above forecast and consensus, and re-affirm our BUY rating on LMC. We like LMC because: (1) The market thinks the Q107 capital repayment is one-off, but we think it could be repeated in FY08, given strong FCF and record earnings. (2) Quarterly earnings continue to beat the market, and margins are secure from export price hikes and the Jan08 domestic automated pricing mechanism. We are positive on the cement industry: (1) the sector is a safe proxy to the government’s 9th Malaysia Plan (9MP), unlike the highly competitive construction sector; (2) cement pricing fundamentals, given the recent introduction of the automated pricing mechanism (APM), and the industry’s closed/oligopolistic market structure; (3) strong export volumes/ pricing, especially from Singapore’s construction boom.
Buy on dips
No surprise on EPS, but we anticipate another capital repayment within the next 12-months. We like LMC as: (1) the APM is a hedge against cost inflation; (2) it is a safe proxy to the 9MP. LMC’s share price has not recovered from the 15% drop after the capital repayment in Nov07.
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Tuesday 4 March 2008
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