Malayan Cement on the cusp of recovery

According to RHB Retail Research, Malayan Cement’s losses have narrowed sharply on cost rationalisation and easing industry headwinds, namely bottoming out of cement production since 2Q19; subsiding key input costs, including coal and petcoke; and recovering ASPs since YTL Cement Berhad’s takeover in May 2019.

RHB Retail Research expects Malayan Cement’s near-term prospects to be relatively sound, and forecast a return
to profitability in FY21F (Note: FYE Dec changed to June starting FY20F).

Looking ahead, efficiency gains would serve as Malayan Cement’s key earnings driver, underpinned by significant synergistic benefits to be reaped from its ongoing business integration with YTL Cement. The latter has been in a class of its own, with a consummate historical track record of unbroken profitability owing to its superior execution and operational efficiency relative to domestic peers.

The research house is also anticipating the upcoming 12th Malaysia Plan to provide longer-term volume visibility – potentially skewed towards the upside owing to pent-up demand from previously delayed infrastructure project roll-outs

Liquidity for the stock is expected to improve in the future. As Malayan Cement’s listing status has been retained post-takeover, YTL Cement is expected to lower its 76.98 percent
effective ownership in accordance with the minimum public shareholding spread of 25 percent. This is likely to occur when market conditions turn more favourable.

Initiate coverage with a BUY and TP of MYR3.00, 33 percent upside.

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