HLG: Lafarge Malayan Cement - Expect better H208 on ASP hikes (27 August 2008)

Lafarge Malayan Cement BUY



Price target RM6.30



Share price at 26 Aug RM4.18



Investment summary


H108 net profit rose +10% yoy due to 15% volume growth, and re-affirms 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) Positive domestic pricing following the liberalization of cement sector.

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 liberalization of the cement sector, and the industry’s closed/oligopolistic market structure.



Taking the long view

LMC is still a great long-term play (dominant cement franchise, liquid stock, capital management possibilities), for investors who can overlook short-term issues (the time-lag between ASP hikes and escalating coal cost).