Mixed views on Lafarge’s prospects

PETALING JAYA: Lafarge Malaysia Bhd which has suffered losses in two consecutive quarters has earned mixed views from analysts.

HLIB Research maintained a “sell” call on the building materials manufacturer’s shares at an unchanged target price of RM4.02, as challenges in the form of weaker demand and continued pressure from pricing are expected.

Although the average selling price for cement has improved as at July, HLIB is of opinion it is still early to conclude that an earnings recovery is underway for Lafarge.

The group’s cost reduction efforts is still deemed as insufficient to offset the negative industry trend. This is despite it seeing some success in its cost cutting measures.

“However, while the demand for cement will pick up over the near term thanks to the rollout of key mega infrastructure projects, it may not immediately absorb the expanded industry capacity stemming from aggressive capex by key players in recent years,” Ambank Research said.

According to the research house, Lafarge will need better earnings to support higher valuations.

The research house also highlighted the reorganisation of its logistics route as it had to ship tonnage of cement from Langkawi to the central region by sea, due to its Kanthan plant being unable to meet demand from the said region, is not cost effective.

It is also in negotiations with its freight service providers as well as bags and pallets supplier for lower prices.

Ambank noted that Lafarge in its capacity as a dominant player with 40% market share, makes it a good “proxy for public infrastructure spending.”

It has a “hold” call on Lafarge’s shares at a target price of RM3.55.

Lafarge’s shares gained 3.4% to RM6.15 with some 1.49 million shares changing hands, bringing its market capitalisation to RM5.22 billion.