Malayan Cement may return to profitability from 2020

KUALA LUMPUR: Malayan Cement Bhd may be seeing an earnings turnaround in 2020 despite operating in a challenging cement market, says Affin Hwang Capital research.

The research house said in a note that the price of cement improved to about RM210-230 per metric tonne in October from RM190 per metric tonne in September due to more rational pricing post-consolidation in the industry.

It added that the resumption of major infrastructure projects in 2020 should support domestic cement demand and an increase in prices.

“Coupled with lower operating costs, we believe the company will return to profitability from 2020 onwards,” said Affin Hwang.

Affin Hwang maintained its hold call on the counter with a lower target price of RM3.40 from RM3.75 previously, based on 1.2x 2020E P/BV.

“Though we see sign of improvement in cement selling prices, we believe industry prospects remain challenging on the back of a prolonged weak property market and excess capacity in the industry,” it said.

The research house also expects YTL Cement to pare down its stake in Malayan Cement to comply with the 25% public spread over the shorter term.

To avoid an impairment of goodwill, YTL’s share placement should be no less than its acquisition price of RM3.75 per share, thus underlining the importance of a return of investor confidence.

YTL’s cement assets are also expected to be injected into Malayan Cement to consolidate the oerations and maximise the synergies between the two companies.

In 1H19, Malayan Cement’s core net loss was reduced by 45% year-on-year to RM80.5mil.

Revenue slid 6% y-o-y to RM1bil while operating cost fell 12% y-o-y owing partly to lower selling and distribution costs, lower administration expenses and lower coal costs.

Source: TheStar