LAFARGE MALAYSIA BHD

LAFARGE has outlined various strategic initiatives to boost its performance from the second half of financial year 2017 (H2FY17) and beyond, after suffering two consecutive quarterly losses in the first and second quarter of FY17.

Lafarge is undertaking cost optimisation with the key focus of ensuring cement is produced near its consumption/offtake points to help bring down the transportation cost.

From now, its plants in Rawang, Kanthan and Pasir Gudang will cater to the northern, central and southern regions respectively, while Langkawi is designated for the export market.

Also, Lafarge is negotiating with its freight service providers and suppliers of bags and pallets to lower prices.

It is optimising its assets by disposing of non-core and low-yielding ones which AmInvestment Bank believes will be mainly high-cost quarries and unused land.

It has already disposed of land in Lumut and Rawang, as well as a quarry in Ipoh.

Nevertheless, Lafarge has invested in a new dry mix plant in Pasir Gudang to cater for the increasing demand from the southern region.

Lafarge is widening its reach to the high-margin retail segment, comprising small contractors, renovators and home owners, via additional flagship stores across the country (to date: 33 stores, target: 50 by end-2017), which will showcase Lafarge ProSolutions products and educate end-users on product application; two Pro-Builder Centre stores by end-2017 which carry comprehensive range of building materials; and e-commerce channels (such as Lazada) with attractive offers.

“We maintain our sales volume growth assumptions of -3%, 1% and 3%, and our average selling price (ASP) per tonne assumptions of RM245/tonne, RM255/tonne and RM265/ tonne in FY17 to FY19 forecast.

“Based on our FY18F forecasts, every 5% change in sales volume growth rate or RM10 change in ASP/tonne will alter earnings by 35% and 34% respectively,” said AmInvestment Bank.

While the demand for cement will pick up over the near term thanks to the rollout of key mega infrastructure projects, it may not immediately absorb the expanded industry capacity stemming from aggressive capex by key players in recent years.

The research house believes Lafarge needs to show better earnings to support higher valuations.