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Lafarge 'sell', Century Logistic 'buy'


LAFARGE MALAYSIA BHD

By MIDF Research

Sell (maintained)

Target price: RM3.80

CEMENT producer Lafarge Malaysia Bhd’s revenue revival prospects remain in the dark, amid more large-scale infrastructure projects announcements by the government such as the East Coast Rail Link and the Light Rail Transit 3.

MIDF Research said Lafarge’s five-year median revenue mix comprises 20% pre-mix and 80% ordinary portland cement would continue to persist for the next two consecutive financial years.

“We reckon that the revenue increase in pre-mix concrete is a better proxy to indicate any early signs of improvement in Lafarge.

“So far, the premix concrete revenue growth is sluggish, registering only 2.06% on a quarter-on-quarter basis,” said the research house in a note.

Following the bearish sentiment on the cement producer’s revenue revival prospects, MIDF Research opined that the company’s operating income would deteriorate further, moving forward.

This is largely due to the unchanged revenue segments against unwavering operating expenses and oversupply of cements including premix concrete and clinkers, coupled with the sharp drop of conventional infrastructure award.

Apart from that, the possibility of electricity tariff to be revised higher in January next year, due to rising coal prices, is expected to impact Lafarge’s operating income.

“Energy and electricity consists of 50% of Lafarge’s operating expenditure, thus changes in electrity tariff and commodities prices will bear significant impact to its operating income,” noted the research unit.

MIDF Research does not expect any lift in Lafarge’s earnings, moving forward, on the back of weaker industry dynamics.

“The sharp drop in conventional infrastructure projects for the first quarter of financial year 2017 will potentially drag Lafarge’s earnings further. Other big-cap cement manufacturers have also shown weakness in revenue growth, marginal compression and lofty valuation, which demonstrate shifts in industry competitiveness, especially production cost,” it said.

MIDF Research left its “sell” call on the Main Market-listed cement producer unchanged, with a target price of RM3.80.

CENTURY LOGISTICS HOLDINGS BHD

By Affin Hwang Capital Research

Buy (maintained)

Target price: RM1.70

AFFIN Hwang Capital Research remains sanguine on Century Logistics Holdings Bhd, underpinned by the company’s new revenue stream from parcel delivery service, potential new customers from integrated logistics segment and stable revenue streams from oil logistics and procurement logistics segment.

Following a recent meeting with the management of Century Logistics, the research house noted that the new parcel delivery services would likely commence its operations in the beginning of next year, providing a new revenue stream to the company.

“The management is targeting to add 50 trucks for the parcel delivery business by the end of this year.

“We expect the parcel delivery services to contribute around RM12mil, RM25mil and RM38mil to Century Logistics’ top line for the financial years of 2018, 2019 and 2020 respectively,” said the research unit in a note.

The major shareholder of Century Logistics, CJ Korea Express (CJ Korex), is targeting to become among the top five global logistics company over the next five years.

The management has indicated that CJ Korex planned to grow Century Logistics into a major player in parcel delivery services.

Affin Hwang Capital Research said the expertise and technology provided by CJ Korex would help Century Logistics to ensure the smooth running of the parcel delivery segment, moving forward.

“Small branches will be set up locally to facilitate the parcel delivery business. Over the next three years, Century Logistics intends to have 500 trucks and 50 branches for the parcel delivery services.

“Having the backing of a global integrated logistics provider like CJ Korex, the logistics player stands a higher chance to win bids of larger companies or multinational corporations.

“Furthermore, CJ Korex plans to work closely with Century Logistics to strengthen the latter’s core logistics offerings via operational consolidation to expand and achieve scale,” said Affin Hwang Capital Research.

The research house has reiterated its “buy” recommendation on Century Logistics and left the target price unaltered at RM1.70.

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