MIDF sees higher margin for Lafarge Malayan (3794)

KUALA LUMPUR: MIDF Research expects Lafarge Malayan Cement Bhd's (LMC) margin to expand due to easing coal costs and higher selling price.

In a note today, MIDF said the new cement price hike, effective tomorrow, was the positive surprise as it expected the bulk cement price to increase only next year and by a marginal RM10 per metric tonne.

The cement price will be increased from RM16.75 and RM17.75 per 50kg bag while for bulk cement price it will increase RM20 per metric tonne or 6.3 per cent to RM340.

"Based on our analysis, for every RM10 metric tonne increase in bulk cement price, LMC’s net profit forecast will increase by 15.1 per cent which translates into an increment of 7.4 sen to its earnings per share," it said.

Meanwhile, besides the hike in cement price, coal fuel cost which accounted for 25 per cent of total cost is now getting cheaper, it added.

The coal price is currently trading at US$83.3 per metric tonne, 32 per cent below its one-year peak of US$122.9 in September 2011.

"Based on our sensitivity analysis, for every US$10 per metric tonne decrease in coal prices, net profit would potentially increase by 8.5 per cent, and vice versa," MIDF said.

Hence the research firm is revising upwards the financial year 2013 earnings forecast by 15.1 per cent.

"Nonetheless we are leaving our financial year 2012 forecast unchanged as we believe the higher price and low coal costs would be offset by its low production following major shutdowns for scheduled maintenance between February and June this year," it added.

As the demand stays resilient, MIDF reiterated its cement demand growth projection of 8.0 per cent for this year given the numerous infrastructure projects under the 10th Malaysia Plan and Economic Transformation Programme that were already on-going.

"Hence, we are upgrading our LMC’s recommendation to 'buy' with a higher target price of RM9.00," it added. -- BERNAMA