‘LAFARGE MAY CUT DIVIDENDS’

HLIB says its shortterm prospects appear to be plagued by industry overcapacity

AYISY YUSOF

KUALA LUMPUR bt@mediaprima.com.my

WHILE Lafarge Malaysia Bhd is a proxy to ride on the construction upcycle, short-term prospects for the company appear to be plagued by industry overcapacity, said Hong Leong Investment Bank (HLIB).

“This has resulted in downward price pressures and softening demand associated with the timing gap on projects rollouts,” it said in a recent report.

HLIB said the current infrastructure boom might not be sufficient to make up for the demand gap caused by weakening of property market.

“We believe Lafarge will decrease its dividend payout significantly, given the tough operating environment, which further reduces the company’s attractiveness as a dividend yield play,” it said.

HLIB has maintained a “sell” valuation recommendation for Lafarge, with a lower target price of RM4.02, following the earnings cut for the financial years 20172018 forecasts by 100 per cent and 3.6 per cent, respectively, after incorporating lower cement price and lower industry sales volume assumptions.

“Given the yearto-date accumulated core losses of RM107.9 million, we opine that Lafarge at best can only breakeven in the financial year 2017, assuming that the cement industry recovers in the second half of the year,” it said.

HLIB said stronger demand for cement consumption reduced price competition and further decline in coal prices, mainly due to revival of property market and pickup of mega infrastructure projects.

Lafarge recorded a net loss of RM44.09 million in the second quarter ended June 30, compared with a net profit of RM18.36 million in the same period a year ago, due to weak demand and competitive environment.

Revenue in the second quarter plunged 18.28 per cent to RM531.77 million, from RM658.80 million previously, due to lower sales from the cement segment caused by the soft market demand, increased industry capacity and continued pricing pressures.

We believe Lafarge will decrease its dividend payout significantly, given the tough operating environment, which further reduces the company’s attractiveness as a dividend yield play. HONG LEONG INVESTMENT BANK