Lafarge Malaysia expected to bounce back in FY17F, FY18F
KUCHING: Lafarge Malaysia Bhd’s (Lafarge) earnings are expected to bounce back in financial year 2017 (FY17F) and FY18F on the back of local cement sales growth as well as contributions from its collaboration with the federal government.
According to Am Investment Bank Bhd (AmInvestment Bank), after a disappointing FY16, Lafarge’s earnings are expected to rise by 44 per cent and 68 per cent in FY17F and FY18F.
“Lafarge’s local cement sales is to grow by five per cent in both FY17F and FY18F, driven by demand from infrastructure and large- scale property projects,” it detailled in a report yesterday.
The research firm believed the group’s quarterly local cement sales – as well as profitability – have hit rock bottom in the third quarter of FY16 (3QFY16).
Meanwhile, AmInvestment Bank’s prudent assumption was that cement’s average selling price (ASP) would remain at about RM250 per tonne in FY17F, before increasing slightly to RM260 per tonne in FY18F and FY19F.
It also believed that Lafarge’s earnings could potentially be boosted by contributions from the group’s collaboration with the federal government to build houses in rural/semi-urban area using its new technology called FASTBUILD.
“FASTBUILD is a monolithic building system that combines aluminum formwork and concrete which able to build and complete the house within nine days.
“The federal government is expected to build more houses in these areas using this technology by Lafarge Malaysia,” it said.
Additionally, operating cost is expected by AmInvestment Bank to improve, on further savings of transportation cost by focusing production in Kanthan, Perak and Rawang, Selangor to fulfil domestic demand and Langkawi solely for export demand (Langkawi previously also supplied to the domestic market via Westport which was not cost efficient).
“Inventory management is further enhanced with SAP implementation on the recent Holcim integration which will guide the company for optimal production for each of the plants,” the research firm said.
It noted that the Langkawi plant workforce has been reduced by 50 people after a voluntary separation scheme (VSS) in 2016.
These savings should more than offset the higher coal cost, which AmInvestment Bank projected to rise by 10 per cent annually in FY17 to FY19F, from (US$55 per tonne in FY16).
The research firm noted that coal makes up about 30 per cent to 35 per cent of its total production cost.
Overall, Am Investment continued to like Lafarge Malaysia because the group is the largest cement player in Malaysia with a 40 per cent market share in Peninsular Malaysia, making it a good proxy to public infrastructure spending in the country, overcapacity in the local cement industry has eased thanks to the pick-up in demand and the company observes strong environmental, social and governance standards.