Analysts see possible turnaround for Lafarge in FY18

KUCHING: Lafarge Malaysia Bhd (Lafarge) could see a turnaround in the financial year 2018 ( FY18), driven by its ongoing strategic initiatives to achieve profitability in the near term.

After suffering a RM135 million net loss for the first nine months of FY17 (9MFY17), the research team at AmInvestment Bank Bhd (AmInvestment Bank) believed the company’s turnaround in FY18F could reach a net profit of RM4.7 million, from an expected net loss of RM165.1 million in FY17F.

“Inourforecasts,theturnaround will also be driven by a higher average selling price (ASP) and sales volume,” it said.

It said, it retained its FY17 to FY19F ASP assumptions of RM245 per tonne, RM255 per tonne and RM265 per tonne respectively and FY17 to FY19F sales volume assumptions of 7.1 million tonnes, 7.8 million tonnes and 8.4 million tonnes respectively.

The strategic initiatives include cost optimisation, as Lafarge plans to source petroleum coke directly from the Middle East, which will result in five to 10 per cent savings in terms of cost, apart from buying it from local suppliers, and asset optimisation via the Rawang plant which is in the process of ‘modernisation’ in order to achieve greater efficiency and reliability.

Lafarge is widening its reach to the high-margin retail segment, comprising small contractors, renovators and homeowners, via additional flagship stores across the country, two Pro- Builder Centre (PBC) stores by end-2017 which carry a comprehensive range of building materials; and e-commerce channels with attractive offers.

All in, AmInvestment pegged a ‘hold’ call on the stock.

“We like Lafarge because it is the dominant player in the cement sector in Peninsular Malaysia with a 40 per cent market share, making it a good proxy for public infrastructure spending, and it practises strong environmental, social and governance ( ESG) standards.”

However, it pointed out that while the demand for cement would pick up over the near term thanks to the rollout of key mega infrastructure projects, it might not immediately absorb the expanded industry capacity stemming from aggressive capex by key players in recent years.