LAFARGE MALAYSIA BHD

LAFARGE’S core net loss of RM126mil for nine months of financial year 2018 (FY18) made up 98% of CIMB Research’s full-year net loss forecast of RM128mil and 70% of consensus net loss forecast of RM180mil.

Results were below the research house’s expectations, dragged by weaker-than-expected demand, more competitive pricing, higher coal cost and higher petcoke prices.

Operating cost advanced 3.1% while revenue declined 1.3% year-on-year (y-o-y).

Core net loss in the third quarter of RM87mil was the seventh quarterly loss since it slipped into the red in the first quarter of FY17.

In the notes accompanying its results, Lafarge said it expected the operating environment for the second half of 2018, particularly fourth-quarter 2018, to remain challenging.

Key factors are weakening demand for cement and concrete, excess capacity placing sustained pressure on selling prices, and upside risks to energy cost.

Similar to first-half 2018, export-bound clinker demand should buck the trend in the second half due to improving selling prices.

Its nine-month segmental breakdown highlighted the widening operating losses for the cement division and a 53% y-o-y increase in operating losses to RM174mil.

The ready-mix segment booked a steep 85% y-o-y decline in operating profit to RM900,000.

The weakening of domestic cement demand as a result of the downturn in contracts rollout, a still-weak property market and higher operating costs is likely to weigh down on earnings for FY19 to FY20.

CIMB Research retains its FY18 net loss and FY19-FY20 net profit pending more details on the new management’s strategy during the post-results meeting next week.

Overall, FY18 is set to be the group’s second year of losses.