Lafarge Malaysia Bhd
(Sept 10, RM10.52)
Maintain hold with target price of RM9.74: On Sept 9, Lafarge held a briefing at its new Construction Development Lab (CDL) site in Petaling Jaya with the intention of giving the investment community an opportunity to explore and discover its CDL facilities. The first such facility in Southeast Asia and sixth in the world, the initial cost of setting it up is RM5 million.

The CDL is being established with the aim of developing new products and methods that will eventually help reduce costs and solve some key issues faced by the local construction industry. This will enable Lafarge to reposition itself from a cement producer to solutions provider.

Lafarge aims to growth its revenue contribution from the solutions provider segment to 40% over the next three to four years, from 10% currently. Despite the growing industry demand, it has yet to translate to Lafarge’s bottom line, given the relatively intense competition.

Moving forward, the company is expected to price its products according to market forces in order to maintain its market leadership.

Management stated that the potential merger of its parent companies, Lafarge SA and Holcim Ltd, is expected to be completed in the first half of 2015. However, given that the merger negotiation is being held at the global level, it does not affect the Malaysian companies. Hence, Lafarge is still competing against Holcim Malaysia Sdn Bhd.

Catalysts for Lafarge include the timely implementation of the Economic Transformation Programme (ETP) projects and sustainable demand from property development projects.

Key risks include delays in the implementation of ETP projects, which can result in lower-than-expected demand for cement consumption, as well as the intensifying price war and steep rise in coal prices and electricity tariffs.

We maintain Lafarge’s target price of RM9.74 based on an unchanged 19.5 times 2015 earnings per share of 49.9 sen. — HLIB Research, Sept 10

This article first appeared in The Edge Financial Daily, on September 11, 2014.