PETALING JAYA: Malayan Cement Bhd could see a sharp earnings rebound in the second half of the year following recovering average selling prices (ASPs) and a decline in key input costs.
According to RHB Research, the company, which was previously known as Lafarge Malayan Cement, will be underpinned by and reap significant synergistic benefits from its ongoing integration with YTL Cement Bhd.
In its report to initiate coverage on Malayan Cement, RHB Research said YTL Cement has been in a class of its own, with a consummate historical track record of unbroken profitability owing to its superior execution and operational efficiency relative to domestic peers.
The research house initiated its coverage with a “buy” rating and a target price of RM3.
“Valuations have turned compelling, reaching a trough at 0.8 times price-to-book (PTB) value or a 60% discount from its historical mean.
"We ascribe a one-time financial year 2021 forecast PTB target at a 30%-50% discount to its 10-year average as well as domestic peers – factoring in the evolving operating landscape, in addition to its constrained liquidity position. But this will likely be supported by YTL Cement’s financing flexibility, ” it said.
The research house said Malayan Cement’s losses have narrowed sharply on cost rationalisation and easing industry headwinds, namely the bottoming out of cement production since the second quarter of last year.
The company had also seen reduced key input costs – including coal and petcoke; and recovering average selling prices since YTL Cement’s takeover in May 2019.
“These should continue to play out after the movement control order (MCO)-led production halt in the first half of 2020, as forward volumes are expected to be supported by post-MCO pent-up demand from the steady pipeline of domestic construction projects in progress and decent exports traction spilling over into 2021, ” RHB Research said.
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