AmWatch, 2 Nov 2009

STOCK FOCUS OF THE DAY
Lafarge Malayan Cement : Positives priced-in, room to return more cash HOLD

We are maintaining our HOLD rating on Lafarge Malayan Cement Bhd (Lafarge) with a lower fair value of RM6.65/share (before: RM6.72/share). Domestic cement demand remained lacklustre in 3Q09 - contracting 7% YoY (1H 2009: -8% YoY) - in the absence of major infrastructure projects. However, Lafarge’s management expects local cement consumption to turnaround in 2010. Launches in Malaysia should also provide a kick to demand for cement. Margin pressures are easing. Furthermore, Lafarge has run-down the bulk of its high-cost coal inventories in 1HFY09. We project Lafarge’s core earnings to grow by 10% to RM389mil. We believe that the bulk of positive newsflow surrounding the stock has been priced-in. Lafarge’s FY09F-11F PEs of 12x-15x are fair - given its modest three-year EPS CAGR of 8%. Lafarge has ample room to return more cash to shareholders as well due to its strong cash flows and comfortable FY09F net gearing ratio of only 7%. Our dividend/share forecast stands at 30 sen for FY09F, rising to 32 sen and 34 sen in FY10F-11F. This translates into decent yields of 5%-6%.

QUICK TAKE
Oil & Gas Sector :Environmental approval for PNG LNG project OVERWEIGHT

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