The Borneo Post (Sabah)
Extra Malayan Cement shares to boost operations
LUMPUR: Malayan Cement Bhd (Malayan Cement) is expected to raise RM226.95 million mainly to repay bank borrowings via a proposed placement of up to 85 million shares, representing 10 per cent of the company’s issued shares as at April 14, 2021.
The total fund is based on the illustrative issue price of RM2.67 per placement share, it said.
In a filing to Bursa Malaysia, Malayan Cement said RM53.93 million out of the total proceeds would be used for working capital, RM170 million to repay bank borrowings, and RM3 million defray estimated expenses relating to the proposed placement.
Post-placement, the company’s total borrowing is expected to be reduced to RM759.62 million from RM929.62 million, bringing the gearing ratio lower to 0.30 times from 0.41 times as at June 30, 2020.
Upon completion of the placement, which is expected by the fourth quarter of the financial year ending June 30, 2021, Malayan Cement’s public shareholding spread will increase to 29.96 per cent from 22.95 per cent.
Researchers with Hong Leong Investment Bank Bhd (HLIB Research) said the placement exercise should increase Malayan Cement’s public shareholding spread from 22.95 per cent to 29.96 per cent, complying with Bursa’s requirement of 25 per cent.
“We are not too surprised by the proposal given that Malayan Cement has not complied with the shareholding spread since 2019,” it said.
“Near term financial performance should remain challenging as we gather that cement average selling prices (ASPs) have continued to decline to RM200/tonne from RM210/tonne at the start of 2021 resulting from weak construction activities in 1QCY21.
“Nonetheless, things should improve in the medium term should MRT3 kick off as the mega project would aid in spurring cement demand from stronger construction activity.”
MRT Corp is expecting to call for tenders in August where HLIB Research believed construction works could start as early as late2021. Beyond MRT3, we note that implementation of expansionary Budget 2021 could lift cement demand further.
“However, despite the positive news flow, rollout risk remains a concern with political fluidity still at play in our view,” it added. “The placement exercise is expected to reduce proforma net gearing from 36 per cent (as of December 2020) to 23 per cent.”
Given that Malayan Cement is still in its early stages of earnings recovery, AmInvestment Bank Bhd (AmInvestment Bank) estimated that the exercise will not be earnings per share (EPS) dilutive, but instead boost its FY21 EPS by two per cent, as a 13 per cent earnings enhancement arising from interest savings more than offset a 10 per cent expansion in the share base.
“Nonetheless, the exercise will be slightly fair value (FV) dilutive, given that the indicative issue price is lower than our existing FV,” it said. “Post the exercise, our FV shall fall marginally to
RM3.29 based on the same assetbased valuation method.
“We maintain our cement per tonne ASP assumptions of RM260, RM270 and RM280 in FY21 to FY23F. For sales volumes, we assume 4.2 million tonnes, 4.4 million tonnes and 4.5 million tonnes respectively during the same period.”
While AmInvestment Bank believe the worst was behind the cement sector in Peninsular Malaysia thanks largely to the sector consolidation, the recovery will be gradual given the still weak outlook for its two main consuming industries: property and construction.
“We now see more rational competition amongst players in the cement sector in Peninsular Malaysia and they are on the verge of a turnaround, followed with sustained profitability.”