AllianceDBS Research tells Lafarge shareholders not to accept YTL Cement offer

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KUALA LUMPUR (May 3): AllianceDBS Research has advised Lafarge Malaysia Bhd's minority shareholders to not accept the offer from YTL Cement Sdn Bhd to acquire a 51% stake in Lafarge as the stock could fetch higher valuations.

This is despite the research house, in a note today, saying it was positive on YTL Cement's acquisition of the 51% stake in Lafarge at RM3.75 per share.

AllianceDBS Research said this would improve industry dynamics that have been pressured by intense price competition and sluggish demand over the past few years.

The research house said YTL Cement and Lafarge will have a combined market share of circa 60%, which would lead to better pricing power.

"We expect cement demand to recover with the revival of several major infrastructure projects and this should help support prices.

"On the back of improved outlook for the cement industry, we believe Lafarge could fetch higher valuations if it remains listed.

"As such, we advise investors not to accept the offer," it said.

AllianceDBS Research said it does not discount the possibility of YTL Corporation Bhd injecting YTL Cement into Lafarge in the future, given that YTL Cement intends to keep Lafarge's listing status (unless it receives acceptance level of more than 90%).

"This could create greater shareholder value," it said.

AllianceDBS Research said it expects Lafarge to trade close to the RM3.75 offer price in the near term.

"On completion of the offer, we believe LMB (Lafarge) could fetch higher valuations if it remains listed. Assuming the stock is valued at its 3-year forward P/BV mean (of 1.7x book value) would imply a RM4.55 value/share for Lafarge," it said.

At 10.49am, Lafarge dipped 0.27% or 1 sen to RM3.71 with 18.684 million shares traded, while YTL Corp was flat at RM1.18 with 832,900 shares done.