Friday 29 Mar 2024
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KUALA LUMPUR (May 3): Affin Hwang Capital Research has upgraded Lafarge Malaysia Bhd (Lafarge) to “Hold” at RM3.72 with a higher target price of RM3.75 (from RM2) after YTL Corp Bhd (YTL) proposed to acquire a 51% stake in Lafarge for RM1.6 billion or RM3.75 per share, which it said translates to a 1.25x price-to-book (P/BV).

In a note today, the research said it opined the offer is fair.

“Lafarge has been in the red since 2017 and incurring negative operating cash flow since then due to stiff price competition from weak domestic cement demand and the oversupply of cement.

Affin Hwang said the consolidation may result in price stability from more rational pricing strategies and capacity cuts.

It said the combination of YTL and Lafarge makes for a dominant player in the cement market, which controls approximately 58% of the domestic cement supply.

“However, we think the cement market outlook remains challenging in the near to medium term partly due to the prolonged weak property market that is plagued by affordability and high overhang issues.

“Currently, the domestic cement industry utilization remains low at circa 60%.

“Upgrade to Hold with a target price of RM3.75,” it said.

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