KUALA LUMPUR: Malayan Cement Bhd (MCB) will benefit directly from the revival of major construction and property projects as the largest cement brand in Malaysia, according to RHB Research.
The investment bank said that while cement production has tapered off from April and May, the latest news regarding the Kuala Lumpur-Singapore High-Speed Rail, Johor Bahru-Singapore Rapid Transit System, Bayan Lepas Light Rail Transit, and Mass Rapid Transit 3 (MRT 3) projects has lifted the property and construction markets' sentiment, signalling potential pick-ups in Peninsular Malaysia's construction activities for the next four to five years.
It added that the rollout of major infrastructure projects would spur mid- to long-term cement demand, which in turn would have a positive spillover for cement makers.
"As such, we raise our cement production volume assumption for FY24 to FY25 as we turn optimistic on cement and concrete demands moving forward," it said in a note today.
RHB Research has lifted its financial year 2024 forecast (FY24) earnings for MCB by 15.7 per cent as it is optimistic about the recent positive developments regarding the cement maker's infrastructure and property projects.
It also said bulk cement prices continue to remain elevated, growing 1.8 per cent month-on-month (MoM) and 14.1 per cent year-on-year (YoY) to RM375.80 per tonne as of June.
"While coal has undergone a sharp correction (down 73 per cent from its peak), we think cement average selling prices (ASPs) would follow suit and gradually soften in the longer term, as coal constituted approximately 56 per cent of MCB's total cost of goods sold in cement production," it noted.
RHB Research estimates core net profits of RM174 million and RM187 million for MCB after lifting its FY24 to FY25 earnings by 13 per cent to 15 per cent.
The investment bank has upgraded the stock's rating to 'Buy' from 'Neutral' previously, with a new target price of RM3.93.
RHB Research said key risks for MCB include inflation of raw material costs, a broad economic slowdown that will taper off construction activities, and a softening in cement and ready-mixed concrete ASPs.