Samram Cement Industry Update

8/14/2019 Samram Cement Industry Update

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SECTOR UPDATE Mercury Securities Sdn Bhd05 June 2008

Cement Sector Outlook: PositiveUpliftment of Ceiling Prices

Analyst: Edmund Tham

LATEST SECTOR NEWS

All information, views and advice are given in good faith but without legal responsibility. Mercury Securities Sdn. Bhd. or companies or

individuals connected with it may have used research material before publication and may have positions in or may be materially interested in

any stocks in the markets mentioned. Strictly for internal circulation only.

Malaysias federal government is scraping the ceilingprice for cement and this will come into effect today,

5th June, 2008. The liberalization of cement pricing is

expected to boost the cement and construction

industry in the country. The government had

received many complaints about the supply of

cement due to the fixed ceiling price for cement.

Meanwhile, global cement prices had also risenabove the government-controlled price.

Liberalization set to ease cement supply

situation

Prime Minister Datuk Seri Abdullah Ahmad Badawi

also said in a statement that importers in Sabah and

Sarawak would be exempted from having to obtain

import licenses, as is the current practice. Under the

new structure, cement importers will only have to

pay a flat rate of 10% import duty for ordinary

Portland cement (HS 2523 29 900) and hydraulic

cement (2523 90 000), which currently carry a 50%and 25% duty respectively.

Earlier on, local cement producers via the Cement &

Concrete Association of Malaysia (C&CA) had

submitted a few proposals to the government. C&CA

had requested that the government raise the ceiling

prices for cement by 10%. There was also a

recommendation for an automated price mechanism

(APM) based on an index that incorporates pricing of

coal, electricity and diesel, the main costs tomanufacture cement.

Next: market awaits the APM for cement

Cement prices have increased 30% to 40% in past

three to four years. As such, the lowering of import

tax on cement will overall be good for the local

construction industry and help sustain cement supply

as there are only a few major players in the market.

However, Master Builders Association of Malaysia

(MBAM) president Patrick Wong said that the

governments move was bad news for its members,

as it would result in local cement manufacturers

raising cement prices. According to him, the 10%

import duty would cause hardship to the industry.

According to Patrick Wong, the construction industry

is set to face higher cement prices as well as an acute

cement shortage. He opines that removing the ceiling

price will not sustain cement supply as cement

manufacturers can still export their productsoverseas. As such, he urged the government to also

curb the export of clinker by issuing export taxes as it

is also an important ingredient to produce cement.

Calls for imposition of export duties

Meanwhile, Real Estate and Housing Developers'

Association Malaysia (REHDA) president Ng Seing

Liong said besides the rising cost of building

materials, developers were also burdened by the cost

of holding unsold units arising from the 30%

Bumiputra quota. Ng prefers that the government

impose higher export duty for cement instead. BothMBAM and REHDA suggested that the government

consider abolishing the 10% import duty on cement.

For developers, the removal of the ceiling price

would ensure a fairer and more competitive

environment for cement producers and users.

Contractors would be more likely will have steady a

steady supply of cement and would be able to import

raw materials from regional producers should

domestic supply be insufficient to meet demand.


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Mercury Securities Sdn Bhd (Page 2 of 4) 05 June 2008

MAJOR CEMENT MANUFACTURERS

LAFARGE MALAYAN CEMENT

(LMCEMNT)

LM Cement is the leader of the Malaysian cement

industry and a major player in the Asian exportmarket. It was incorporated in 1950 with its first

cement plant built in Malaysia in 1953. Its group of

companies are based in Malaysia and Singapore, with

core businesses in the manufacturing and sale of

cement, ready-mixed concrete and other relatedbuilding materials.

LM Cement currently operates 3 integrated cement

plants in Langkawi (Kedah), Kanthan (Perak) and

Rawang (Selangor). Lafarge SA of France, which

holds a 62.2% stake in LM Cement, is a world leader

in building materials, such as cement, aggregates,

concrete, and gypsum.

CEMENT INDUSTRIES OF MALYSIA

(CIMA)

Cement Industries of Malaysia Berhad (CIMA) is

one of the pioneers of cement manufacturing in

Malaysia. Since 1975, CIMA has gone through a

huge transformation from manufacturing imported

clinker to being the third largest cement producer in

the country. CIMA has plants in Chuping (Perlis) and

Bahau (Negeri Sembilan). CIMA is 50.5% owned by

UEM World Bhd (UEMWRLD).

YTL CEMENT (YTLCMT)

YTL Cement is basically involved in cement and

concrete manufacturing and quarry operations. It has

plants in Westport (Selangor) and Pasir Gudang

(Johor). YTL Industries Bhd holds a 43.0% stake inYTL Cement.

TASEK CORPORATION (TASEK)

Tasek Corporation Berhad was incorporated in 1962

as Tasek Cement Ltd and listed on the stock

exchange the following year. It commenced cement

production in 1964 at its plant in the Tasek IndustrialEstate, Ipoh (Perak). Currently, Hong Leong Asia

Ltd holds a 25.6% stake in Tasek.

In April 2008, Tasek had entered into a S&P

agreement with Hong Leong Asia Ltd (HLA) to

acquire all of HLA's building materials business for a

total purchase consideration of SGD323.5 million to

be satisfied through the issuance of 212.2 million

new ordinary shares at an issue price of RM3.54 per

ordinary share. In the same month, it was reported in

the media that Switzerland-based cement maker

Holcim Ltd was interested to buy over Taseks

businesses, but nothing has materialized.

CAHYA MATA SARAWAK (CMSB)

Cahya Mata Sarawaks (CMSB) businesses are

divided into various business units - cement &

construction materials, construction & road

maintenance, property development, Similajau

Development, services and financial services. CMSCement S/B is its cement manufacturing arm, with

manufacturing plants situated in Kuching and

Bintulu, Sarawak. CMSB is the investment vehicle of

Sarawak Chief Minister Tan Sri Abdul Taib Mahmud

and his family (holding an estimated 42.9% stake).

GOPENG (GOPENG)

Gopengs core businesses are in plantation and

property development. It is involved in cement

manufacturing via its 35.2%-held associate company

Perak-Hanjoong Simen S/B, which has a plant in

Perak. Gopeng is helmed by its chairman DatoMohd Salleh bin Hashim (holds a 19.6% direct

stake). We note with interest the presence of 2

representatives of quiet investor Sunway Holdings

Bhd (SUNWAY) on Gopengs board of directors.

WHICH STOCKS TO WATCH?

Since the federal government announced its move to

liberalize the local steel industry on 9th May, cement-

related stocks also started to appreciate onexpectation the sector would be the next to be

liberalized.

What do the charts indicate?

All the 6 cement stocks did move on an uptrend

during early May. Among them, Tasek showed the

most abrupt uptrend in stock prices. A review of

technical analysis indicators such as trading prices

and volumes, MACD, Stochastics and RSI reveal that

Tasek is currently in an overbought territory.

YTL Cement and Gopeng are showing a neutral bias

while CIMA, LM Cement and CMSB are near the

oversold level.

Sector Update


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SECTOR OUTLOOKWhich company has the most upside?

Of the 6 stocks covered in this report, 4 have more

than 50% of their revenues from cement

manufacturing and trading (LM Cement, CIMA,

YTL Cement and Tasek). Of the 4 stocks, we would

favour LM Cement given that it has retreated themost YTD (hence more upside), has the most upside

to consensus target price, is the market leader among

cement manufacturers and offers the best dividend

yield. As we are not forecasting the future earnings

of these cement manufacturers, we would refrainfrom providing target prices for them.

With sluggish growth in the retail property market,

the governments 9th Malaysian Plan (9MP)

infrastructure projects and private construction

projects would drive the domestic demand and

consumption for cement.

The demand and sales outlook for cement looks

bright. However, the tight cement supply situation

and rising fuel and coal costs would put some

pressure on margins. Additionally, the earnings of the

domestic cement manufacturers would also depend

on the quantum of selling price increase and the

proposed implementation of the Automatic Pricing

Mechanism (APM). Meanwhile, the cement supply

situation would depend on the imposition of any

export duties or restrictions.

Appendices

Stock financials

Bursa S. Name Unit LMCEMNT CIMA YTLCMT TASEK CMSB GOPENG

Bloomberg TK LMC CIM YTLC TC CMS GOP

Bursa S. Code 3794 2844 8737 4448 2852 2135

Mkt cap RMm 3585.7 818.6 2245.8 887.5 701.7 163.2

No. of shares mil 849.7 141.1 490.3 186.5 329.4 179.3

Mkt price RM 4.22 5.80 4.58 4.76 2.13 0.91

52wk Hi Price RM 6.80 8.10 6.20 4.78 3.20 1.09

52wk Lo Price RM 3.62 4.88 4.02 3.68 1.83 0.68Upside to 52wk Hi % 61.1 39.7 35.4 0.4 50.2 19.8

YTD price chg % (27.9) (10.1) (8.4) 20.8 (7.0) 3.4

Consensus TP RM 5.46 7.00 5.34 4.45 2.23 N/A

Cons. TP upside % 29.4 20.7 16.6 (6.5) 4.7 N/A

1-yr avg daily vol '00 10166 1764 1896 182 2927 995

EPS (last 4 qtr) RM 0.32 0.50 0.30 0.54 0.23 0.17

P/E x 13.2 11.6 15.3 8.8 9.4 5.3

BV/share RM 3.50 5.84 2.72 4.29 3.78 1.26

P/BV x 1.2 1.0 1.7 1.1 0.6 0.7

Div/share (last FY) RM 0.15 0.09 0.11 0.07 0.04 0.04

Div yield % 3.6 1.6 2.4 1.5 1.9 4.4

Revenue (last FY) RMm 2173.5 606.6 1150.0 320.9 745.3 13.6

NPAT (last FY) RMm 287.8 66.3 161.4 76.0 388.2 27.5

NPAT margin % 13.2 10.9 14.0 23.7 52.1 n.m.Cement/total rev (est) % 69.0 100.0 100.0 100.0 48.0 28.0

Source: Bloomberg/our estimates

All information, views and advice are given in good faith but without legal responsibility. Mercury Securities Sdn. Bhd. or companies or

individuals connected with it may have used research material before publication and may have positions in or may be materially interested in

any stocks in the markets mentioned. Strictly for internal circulation only.


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YTD stock charts

LMCEMNT (3794) RM4.22

CIMA (2844) RM5.80

YTLCMT (8737) RM4.58

TASEK (4448) RM4.76

CMSB (2852) RM2.13

GOPENG (2135) RM0.91

Sector Update

Samram Cement Industry Update

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