Thursday 28 Mar 2024
By
main news image

Lafarge-Malaysia_Chart_33_1072_theedgemarketsLAFARGE MALAYSIA BHD had a disappointing 2014 and as the cement maker seeks to recover lost ground, the announcement of the 11th Malaysia Plan (11MP) last month couldn’t have been timelier.

For its financial year ended Dec 31, 2014 (FY2014), Lafarge (fundamental: 1.80; valuation: 1.10) saw its net profit plunge 30.3% year on year to RM256.01 million. Revenue decreased 3.8% to RM2.74 billion from a year earlier.

The weaker performance was attributed to lower cement prices and aggravated by higher operating costs and the increased capacity of its competitors.

In the first quarter ended March 31, 2015 (1QFY2015), Lafarge reported a net profit of RM73.69 million, slightly lower than RM73.93 million the year before, while revenue grew 2.9% to RM696.09 million.

“We are very anxious to restore our profitability to the level that we think it should be as soon as possible,” Lafarge Malaysia president and CEO Bradley Mulroney tells The Edge. The 52-year-old Englishman had joined Lafarge Malaysia as an executive director in July 2009 before being appointed country CEO in January 2012. Formerly vice-president of Lafarge SA Paris, he has had stints in the UK, Asia and the Middle East.

Mulroney says Lafarge could benefit from 11MP, under which 606,000 affordable houses will be built. The plan allocates RM260 billion for development expenditure over the next five years, half of which will be spent on infrastructure development.

“Affordable housing is a global challenge. Every government is trying to address this issue, but Malaysia has been making reasonable progress,” Mulroney says.

He stresses that an affordable house is not a prefabricated home and it should not be seen as a cheap product. Instead, affordable homes should be developed based on different construction methodology, using new industrial building systems that will help reduce construction cost and time.

Lafarge’s management team is currently in discussions with the government to adopt the Fastbuild solution — a monolithic building system that reduces construction time and cost for each floor by 84% and 36% respectively — for the affordable housing market and is planning to commercialise the product this year.

Lafarge is involved in the manufacture and sale of cement, ready-mixed concrete, aggregates and other building materials.

For it cement product line, Lafarge operates three integrated cement plants in Kanthan, Langkawi and Rawang, as well as a grinding station in Pasir Gudang, Johor. It has an annual production capacity of almost 13 million tonnes of cement, which accounts for about 40% of total production capacity in Peninsular Malaysia. By the end of 2016, the Rawang and Kanthan plants will have an additional combined capacity of 1.2 million tonnes.

As for its concrete and aggregate product lines, Lafarge has more than 30 ready-mixed concrete batching plants and five aggregate quarries throughout Peninsular Malaysia.

This year, the group plans to invest some RM20 million in building nine new batching plants. Eight plants — five commercial and three project — were added last year.

Lafarge Malaysia executive director and chief financial officer Michael Lim Yoke Tuan says the group has allocated capital expenditure (capex) of RM300 million for this year. Some RM240 million will be spent on the expansion the capacity of the Rawang and Kanthan plants, with the remaining RM60 million for sustaining capex, mainly to maintain operations and replace machinery.

Next year, he says, there will be an additional capex of RM150 million, with RM90 million to be used for capacity expansion and RM60 million as sustaining capex.

“Our capacity expansion projects are spread over two years. The 300,000 tonne capacity expansion of the Rawang plant will be completed by the end of this year, while another 900,000 tonnes will kick at the Kanthan plant next year. The 1.2 million tonnes will give us additional (sales) volume and earnings before interest, taxes, depreciation and amortisation,” adds Lim.

However, the capacity expansion is also a concern. AmResearch, which downgraded the stock to a “hold” in January, says it will only turn more positive when “there are signs of a more sustained uptrend in cement prices.

“Until then, volatile cement prices and incoming new capacity over the next two years remain our key concerns.”

Lafarge is currently trading at a historical price-earnings ratio (PER) of 29.3 times based on an earnings per share of 30.13 sen in FY2014. Based on consensus forecast EPS, Lafarge is trading at a forward PER of 23 times.

Lafarge’s 2014 dividend per share of 34 sen translates into a payout ratio of 113% and a yield of 3.8% based on last Thursday’s closing price of RM8.85.

In comparison, Tasek Corp Bhd (fundamental: 3; valuation: 1.30), which declared special dividends twice last year, offers a more attractive yield of 10.5% and a payout ratio of 196%. Year to date, the counter has risen 6% and closed at RM16.10 last Thursday, giving it a market capitalisation of RM1.95 billion.

Lim says Lafarge remains in a comfortable position to distribute good dividends. “Some analysts are of the view that our dividend could be lower [this year] because of the RM300 million capex. But I would say this is not an issue at all, as we can pay as much dividend as we want to.”

Currently, says Lim, Lafarge has a high cash position of about RM450 million and generates an annual operating cash flow of some RM450 million. “In total, we have a comfortable cash flow position of RM900 million, and we have not even utilised the RM300 million credit facility yet.”

As at March 31 this year, the debt-free group’s net cash stood at RM432 million, which represents net cash per share of 51 sen.

Year to date, Lafarge’s shares have fallen 9.3% and closed at a 52-week low of RM8.85 last Thursday, giving it a market capitalisation of RM7.52 billion.

Lafarge-Malaysia-Financial_Table_46_1072_theedgemarkets


Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

This article first appeared in The Edge Malaysia Weekly, on June 22 - 28, 2015.

 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

      Print
      Text Size
      Share