KUALA LUMPUR (July 24): Hong Leong IB Research has maintained its “Neutral” rating on the building materials sector and said it was maintaining its less bullish view on the steel sub-sector’s near to medium-term outlook, as it continues to see weak prospects of steel players in Malaysia, on the back of: (1) excess capacity in China, and the absence of  effective anti-dumping measures in place locally, will continue to hurt prospects of local steel producers in Malaysia; and (2) declining key steel making input prices (in particularly iron ore and coking coal), which will hurt stockists’ restocking activities.

In a note today, the research house said it expects price competition among the cement players to continue ahead of the completion of new capacities in order to protect their respective market shares. 

“Nevertheless, we do not expect price competition among the players to intensify significantly, as the cement segment is dominated by only a handful of players, and most cement players (if not all) have strong balance sheet and operating cash flow (which in turn indicates that cement players do not have to cut cement prices aggressively in order to generate cash flow).

“We are ceasing coverage on Ann Joo Resources Bhd (TP: RM1.02) and CSC Steel Holdings Bhd (TP: RM0.95), due to relocation of resources, as well as the weak steel sub-sector’s weak prospects.

“For exposure to the building material sector, our preferred pick is Lafarge Malaysia Bhd (Buy; TP: RM10.72),” it said.