KUALA LUMPUR: Kenanga Research has maintained its Market Perform on Lafarge Malaysia with a target price of RM10 based on 20 times PER on FY15E EPS of 50.1 sen.
In a note on Wednesday, the research house said it maintained its neutral outlook on the group since any positives from improved market demand may be negated by lower ASPs due to increased competition in the domestic cement industry.
Lafarge announced that Lafarge Cement Sdn Bhd executed the Form of Agreement and Conditions of Contract with Petronas Refinery and Petrochemical Corporation Sdn Bhd to supply concrete for the Proposed Refinery and Petrochemicals Integrated Development (Rapid) Project and other Petronas Related Projects at Pengerang, Johor - Package 21D at an estimated value of RM254mil for a duration of five years.
It has also bought Cement Mill and ancillaries from Lafarge Ciment (Romania) S.A. for EUR10.7mil (RM46.0mil).
Kenanga said the news is positive to Lafarge's long-term growth.
"We expect minimal earnings impact in the near-term for but we think the impact to share price should be limited due to the relatively small effect on earnings from the Rapid contract, while for the mill acquisition, we believe the earnings growth on Lafarge’s expansion has already been priced in," it said.
Despite the expectation of robust domestic construction growth, the sector-wide capacity expansion is likely to intensify competition and result in depressed cement prices in the near-term, it said.
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