YTL Cement’s stake in Lafarge rises to 77%

KUALA LUMPUR: YTL Cement’s shareholding in Lafarge Malaysia rose from 51% to 77% at the close of the acceptance period for the former’s mandatory offer (MO) for the remaining 49% stake, CIMB Equities Research said.

It said on Friday minority shareholders with a collective 26% shareholding in Lafarge accepted the RM3.75 a share offer price. The remaining 23% minority shareholders did not accept the MO. 
Lafarge will remain listed and would need to comply with Bursa Malaysia’s 25% minimum public spread requirement within the next three months.

The research house also said YTL Corp proposed to take YTL Land private via a share swap deal. It will acquire the remaining 34.7% stake in YTL Land at 36 sen a YTL Land share via the issuance of new YTL Corp shares pegged to a swap price of RM1.14/share (FY6/18 P/E of 33.1 times). 

“The offer is at a 62% discount to YTL Land’s FY6/18 book value (BV) or 0.38 times price/BV. This deal will see YTL Corp issuing 91 million new shares at a swap ratio of 0.32. It will also acquire the remaining ICULS in YTL Land,” it said.

“In the medium term, we expect the acquisition of Lafarge to remain earnings dilutive for YTL given Lafarge recorded losses in 1Q19, in view of the still-weak cement demand and pending the potential benefits/operational synergies from the consolidation with YTL Cement.
“We maintain our longer-term positive view on the takeover, as the combined estimated c.60% market share could enhance pricing power, in addition to Lafarge’s revived contract with the East Coast Rail Line (ECRL). 

“With YTL Land deal likely to be completed in 4Q19F, we retain our FY19-21F EPS,” it said.

As for the YTL Land share swap deal, it would enable minority shareholders to switch to YTL Corp shares with better liquidity and more profitable/diversified exposure. 

“As at 9MFY6/19, YTL Land reported a net loss of RM56mil compared to RM5.8mil net profit in 9MFY6/18 mainly due to weak property sales underpinned by the challenging market conditions domestically and in Singapore.

“Retain TP of RM1.13 (30% discount to RNAV) and Hold call. Indicatively, imputing the surplus market value of Lafarge, given the 16% increase in its share price since the takeover offer (fuelled yesterday by talks of a potential increase in net selling prices which are currently below RM200/tonne on average) would raise our TP by four sen. 

“Upside risks are a recovery in cement prices despite the still subdued industry demand outlook over the next 12 months, and faster turnaround for Lafarge. Downside risk is wider losses,” it said.

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