Affin IB Research maintains Reduce on Lafarge, cuts target price

Affin IB Research maintains Reduce on Lafarge, cuts target price
Business & Markets 2014
Written by theedgemalaysia.com
Monday, 10 March 2014 08:48

KUALA LUMPUR (March 10): Affin IB Research has maintained its Reduce rating on Lafarge Malaysia Bhd at RM9.29 with a lower target price of RM8.35 (from RM8.50) and said it had lowered Lafarge’s 2014 earnings forecast by 6.7% after imputing the 19% tariff hike effective January 2014.

In a note Monday, the research house however said the impact was partially negated by lower coal assumption of US$85/MT (from US$90/MT), and higher net average selling price assumption of RM295/MT (+1%).

Affin IB Research said Lafarge had also begun expanding its grinding capacity which will add an additional 1.2 million tonnes a year to 14.1 million tonnes.

It said the capital expenditure (capex) required would be between RM250 million to RM300 million.

“We are not concerned on funding as Lafarge has minimal borrowings and is currently in a net cash position.

“At current price level, Lafarge is trading at 21x CY14E PER, which is above its 3-year average PER of 19x.

“Due to the earnings downgrade, we have lowered our fair value on Lafarge to RM8.35, still based on its 3-year average PER of 19x. Maintain Reduce. Upside risk to our recommendation includes a potential hike in domestic gross selling prices,” it said.