9MP to Drive Cement Demand



22 September 2007


PETALING JAYA: Lafarge Malayan Cement Bhd is expected to see firmer demand next year as the bulk of the Ninth Malaysia Plan (9MP) projects would be implemented then. 


AmResearch in a report said Lafarge's domestic cement demand was likely to rise to 4% in the next two years from 1% this year. 


"Our channel checks revealed up to RM35bil worth of mega projects that are likely to commence by end of 2007," the bank-backed research house said. 


Despite the contraction in local cement demand during the first half-year, Lafarge's earnings momentum remained strong, AmResearch noted. 


For the first six months, net profit rose 79% to RM113.2mil compared to RM63.3mil a year ago. Revenue improved to RM1.05bil from RM1.01bil previously. 


This indicated further upside once demand supplants price as earnings drivers. On estimates, every 1% increase in cement demand could boost Lafarge's earnings for fiscal year ending Dec 31, 2007 to 2009 by 3%-9%, the brokerage added. 


Lafarge's ready-mixed concrete (RMC) operations in Singapore turned around in the first half year, recording a profit of RM5.4mil against a loss of RM700,000 a year ago. 


Management had attributed the better results to a pick-up in construction activities in Singapore. 


For the Malaysian RMC operations, selling prices had risen up to RM10 per tonne year-on-year although the price increase still lagged behind the 9%-10% increase in cement cost, AmResearch said. 


As such, the brokerage expects Lafarge's Singapore RMC operations to post stronger profits while the Malaysian RMC business to see narrower losses. 


Valuations of Lafarge shares "remained compelling" at forward price-to-earnings of 15 times to 19 times against robust earnings per share compounded annual growth rate of 21%, the research added.