Possible higher profits for cement players

  • Construction
  • Thursday, 13 Feb 2020

In light of the higher cement average selling price, UOB says that most cement companies are likely to report better earnings in 4Q19 or either break even or narrow their losses.

PETALING JAYA: Cement companies are expected to report better earnings in light of higher cement prices.

According to UOB Kay Hian Research, earnings for cement companies are likely to have improved in the fourth quarter of 2019 (4Q19) on higher bulk and bag cement prices.

In a report yesterday, the research firm said its channel checks confirmed that cement producers have announced hikes which should bring bulk cement prices to RM240-RM250 per tonne in February.

However, it has conservatively factored in a gradual and measured implementation to RM230-RM240 per tonne.

“We gathered that there was a RM30 to RM40 per tonne increase in bulk cement prices for smaller cement players starting early February, which essentially brings their prices to RM240 to RM250 per tonne.

“This is in line with the price set by an industry leader and also within our estimates for 2020.”

In light of the higher cement average selling price (ASP), UOB Kay Hian said that most cement companies are likely to report better earnings quarter-on-quarter, or either break even or narrow their losses.

In 3Q19, bulk cement ASP was reported at RM200 per tonne compared to RM225 per tonne in 4Q19

As such, the research house has raised its earnings forecast and target price for HUME INDUSTRIES BHD to RM2.20 from RM1.45 previously.

Another beneficiary is Malayan Cement Bhd, which is also expected to benefit from major cost savings after being acquired by YTL Cement.

“We also understand that construction companies are able to absorb cement price hikes so long as they are gradual and done at a reasonable quantum.”

The research house said cement prices should sustain at the RM240 to RM250 per tonne level, given the break-even of RM230 per tonne.

The majority of cement producers are expecting cement demand to recover slightly in 2020 on the back of the gradual commencement of mega and infrastructure projects.

It said gradual price hikes are more sustainable as opposed to drastic price hikes.

“Recall that back in the second-half of 2019, cement industry players tried to raise bulk cement prices by 40% to RM280 per tonne.

“The move received a huge backlash in various parties and was subsequently called off, ” it said.

“As such, we believe that the recent move by smaller cement producers to match prices and increases by the industry leader on a gradual basis would be well received by construction companies and property developers, ” it said.

According to UOB Kay Hian, it has gathered that cement demand was down to 17 million tonnes in 2019 compared to 19 million tonnes in 2018.

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