KUALA LUMPUR (Sept 24): AmInvestment Bank maintained its "Hold" rating on Lafarge Malaysia Bhd at RM3.04 with a lower fair value (FV) of RM3.33 and said it projected steeper net losses for FY20-21F for Lafarge.
In a note today, AmInvestment Bank maintained its FY19F forecast but projected steeper net losses of RM102 million and RM70.9 million for FY20-21F, versus net losses of RM50.4 million and RM14 million previously, for Lafarge.
The research house reduced its FV by 8% to RM3.33 from RM3.61 previously as it now values the company based on US$96 per clinker tonne (9.2 million clinker capacity x US$96 x RM4.22:US$1 minus RM895 million net debt), at 20% discount to the replacement cost of US$120 to reflect the still challenging cement sector outlook in Peninsular Malaysia.
Yesterday, the proposed RM3.5 billion related party transaction (RPT) between Lafarge and YTL Cement Bhd was rejected by Lafarge's minority shareholders in an extraordinary general meeting.
The research house said it believed that the RPT would have allowed Lafarge and YTL Cement to derive synergies in terms of bulk sourcing of raw materials and sharing of land use, logistics and even office premises, et cetera.
AmInvestment Bank said it previously assumed that these synergies would enhance earnings to the tune of 2% of turnover.
"We also believe the latest development could pave the way for a more immediate merger exercise between YTL Cement and Lafarge (to drive these synergies)," it added.
The research house said the outlook for the cement sector in Peninsular Malaysia will remain challenging over the medium term due to the wide gap between the local demands versus the installed capacity.
AmInvestment Bank estimated that the local clinker capacity in Peninsular Malaysia now stands at 26 million tonnes, as compared with its projected local demand at only 15 million tonnes in 2019 and 16 million tonnes in 2020.
"However, the takeover of Lafarge by YTL Cement resulting in the merged entity's control of about 60% of the cement market in Peninsular Malaysia should bring about reduced competition and hence greater pricing power for the producers over time," it said.
At 10.50am, Lafarge rose 2.3% or 7 sen to RM3.11 for a market capitalisation of RM2.64 billion.