CGSCIMB believes Malayan Cement (MCement) will announce a strong set of 4QFY6/23 results in late-August.
“We now estimate 4QFY6/23 core net profit to rise 114% yoy and 37% qoq, driven by the full impact of average selling price increase, lower coal costs and ECRL project running at full steam,” said CGSCIMB in the recent Company Note.
Key downside risks are the implementation of carbon tax, slowing property demand and delays in infrastructure project rollout. CGSCIMB states a new Target Price of RM5.55.
It was reported in mid-July that Sarawak intended to strengthen its cement supply chain and expected a shortfall once major development projects kicked off.
This led to an MOU between Innocement Sdn Bhd and YTL Cement to diversify supply risk. The Chief Minister of Sarawak was quoted as saying the demand for cement is expected to stay high with RM46bn allocated for infrastructure.
“Cement prices are on average 15% higher in East Malaysia and we believe MCement can be price competitive even after factoring in higher transportation costs,” said CGSCIMB.
In their view, cement industry prospects will look brighter post 4QCY23F once there is clarity on MRT 3, Bayan Lepas LRT and HSR, which have a combined value of RM90bn.
Assuming cement accounts for 5% of total construction cost, they estimate this could result in additional demand of RM4.5bn over the next 5 to 6 years.
