Malayan Cement Bhd’s (MCement) delivered another bumper quarter for the second quarter ended Dec 31, 2023 (2Q24), which CGS-CIMB deemed above expectation.
“MCement delivered a 2Q24 core net profit of RM121 million, more than 100% year-on-year (YoY) and 26% quarter-on-quarter (QoQ), bringing half of the year ended Dec 31, 2023 (1HFY24) core net profit to RM212 million, an increase of 26% YoY.
“This accounted for 69% of our and 72% of Bloomberg consensus’ estimates. We deem this to be above expectations due to higher revenue growth in 1HFY24 and better earnings before interest, taxes, depreciation, and amortization (Ebitda) margins.
Therefore, the research house reiterated its ADD rating and discounted cash flow (DCF)-derived target price (TP) of RM6, with weighted average cost of capital (WACC) of 7.6%, long-term growth (TG) of 3%.
“MCement trades at CY25F enterprise value to its earnings before interest, taxes, depreciation and amortization (EV/EBITDA) of 9.3 times, which we think is inexpensive given its FY23 to FY26F, earnings per share (EPS) compound annual growth rate (CAGR) of 40%.
It said that the cement and clinker company’s 2Q23 revenue showed a 29% YoY and 1% QoQ increase to RM1.16 billion due to higher volumes and greater stability in selling prices for both domestic cement and ready mixed concrete.
“Given the more stable pricing environment QoQ, it managed to eke out marginal volume growth for both cement and ready-mixed concrete.
“We understand the group is now the sole supplier of cement for the East Coast Railway Link (ECRL) where its strong proposition is the grinding plant at Port Klang which covers the ECRL route.
“At the pretax profit level, 2Q24 rose 22% QoQ to RM185 million due to lower coal prices. No dividend was declared for the quarter, we expect a 9 sen payout for FY24F compared to 6 sen for FY23,” it said today in its Company Flash Note today (Feb 23).
CGS-CIMB expects stronger volume growth for MCement once mega projects are rolled out, cementing its market share in Singapore.
“We think the possibility of key mega project rollouts in the second half of 2024, including the MRT 3, Bayan Lepas LRT, and HSR, makes the group one of their key beneficiaries given that it has a 65% cement production capacity market share in Malaysia currently.
“The group has also achieved a 40% cement market share in Singapore currently, helped by its ownership of the largest cement terminal on the island state, with a capacity of 5 million tonnes per annum,” it added.
The research house believes the group has an edge in terms of logistics in view of its ability to export cement and clinker to Singapore and South Asia via its strategically located Langkawi plant.
“We expect a slew of mega projects in Singapore, such as Changi Terminal 5 (S$10bn), Integrated Resorts Expansion (S$9bn), Tuas Megas Port (S$20bn) and MRT projects (S$57bn), to be awarded over the next few years,” it added.
The downside risks of CGS-CIMB call are slowing property demand and delays in the award of key infrastructure projects while its re-rating catalysts are faster-than-expected rollout of major projects and stronger-than-expected property sales.
