YTL Cement Bhd is buying a 32.1% stake in Perak-Hanjoong Simen Sdn Bhd (PHS) – the country's second largest integrated cement producer – from Doosan Heavy Industries & Construction Co Ltd for RM75.25mil cash.
In a statement to Bursa Malaysia yesterday, YTL Cement said it had entered into an agreement with South Korea-based Doosan to acquire 107.5 million shares in PHS, which operates two plants in Padang Rengas, Perak, and a cement depot and packing plant in Batu Caves, Selangor.
PHS has the capacity to produce three million tonnes of clinker and 3.4 million tonnes of cement a year, while its depot can handle 600,000 tonnes annually.
YTL Cement managing director Tan Sri Francis Yeoh said the proposed acquisition was in line with the company's policy of pursuing expansion opportunities as they arose and enhancing operations in niche markets.
Asked why YTL Cement would want to continue expanding under the current tough operating conditions in the industry, Yeoh said: “There is little planting in the next few years, so I think the local cement industry is in for a good run if economic growth continues to be robust.''
Indeed, he told StarBiz that the company was also exploring investment opportunities in Indonesia, where its sister company, YTL Power International Bhd, has agreed to buy a 35% stake and loan stocks in the second largest independent power producer there.
“We are investing in the second biggest power plant in Indonesia because we think Indonesia is ripe for longer term investments after seven difficult years,'' he said. “We naturally will also look for opportunities in Indonesia's cement industry.''
This is the second purchase by YTL Cement in less than a year.
In March, the company completed the acquisition of the balance 50% of Pahang Cement Sdn Bhd that it did not own from Perbadanan Setiausaha Kerajaan Pahang and Pasdec Corp Bhd for RM138mil.
Investment analysts see the acquisitions as a sign of consolidation in the local cement industry, where excess capacity in recent years has driven down prices.
Yeoh agrees that the domestic cement industry is one of the most competitive in the region.
Nonetheless, he said YTL Cement was continuing to thrive under these tough conditions as it had managed to build its plants at competitive costs. In addition, the company had an efficient distribution network and its plants were fully utilised.
YTL Cement's revenue and pre-tax profit have been rising the past five financial years. For the nine months ended March 31, it chalked up a nearly 20% growth in pre-tax profit to RM71.7mil from RM59.8mil in the previous corresponding period. Revenue rose 17.5% to RM362mil from RM308mil.
Analysts said the “rather good” gross margin of 11% to 17% that YTL Cement was able to achieve reflected its high efficiency level.
“YTL Cement's acquisition (of PHS) will be another feather in its cap,'' a senior analyst with a leading local stockbroking house said, adding that it was a good deal for the company for the price it was paying.
She said the acquisition would place YTL Cement in a stronger position to ride on the recovery trend in the industry when cement demand picked up.
According to YTL Cement's statement to Bursa Malaysia, PHS had a net loss of RM12mil for the financial year ended Dec 31, 2002, compared with a profit of RM16.3mil in 2001.
It said the proposed acquisition would not have an impact on YTL Cement's earnings in its current financial year to June 30, 2005.
Did you find this article insightful?