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LaFarge Malaysia Bhd
(Aug 28, RM9.30)

Maintain netural with an unchanged target price (TP) of RM9.15: LaFarge Malaysia’s second quarter ended June 30, 2015 (2QFY15) profit after tax and minority interests was comparably lower at RM63.9 million (-17.4% year-on-year [y-o-y]; -13.3% quarter-on-quarter [q-o-q]). It came below expectations, registering only 31.2% of our and 39.6% of consensus full-year forecasts respectively. Bland earnings influenced by lower sales from all segments. 

We reckon its bland earnings were due to the following including changes in industrial consumption and demand due to shifts in construction technology (using alternative formworks such as precast flat panel, tunnel form, flat slabs, insulating concrete, lightweight concrete panel and polyurethane wall panels). 

The changes affect demand by disrupting the distribution channel, demand of ready-mix concrete and ordinary portland cement (OPC), intense industrial product and pricing competition especially OPC product supply from rivals such as Panda (Hume Cement Sdn Bhd), Castle (YTL Cement Bhd), and imported (tariff free) cements from China with a 20% price rebate. 

Overall, we maintain our earnings forecasts at this point on the account of its long-term performance and its ability to widen its distribution channel to increase sales especially in the concrete mix segment. 

We maintain our “neutral” stance with a TP of RM9.15 by pegging our average FY15 to FY16 estimate earnings per share of 39.8 sen to price-earnings ratio multiples of 23 times reflecting its five-year quarterly historical average. — MIDF Research, Aug 28

Lafarge_ded01092015_theedgemarkets

This article first appeared in digitaledge Daily, on September 1, 2015.

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