PP 7767/09/2010(025354)

26 August 2010
RHB Research
Corporate Highlights
Malaysia
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su lts N ot e
26 August 2010
MARKET DATELINE

Lafarge M Cement Share Price

Fair Value
:
:
RM6.95
RM6.88
Improved Due to Higher Domestic Prices Recom : Market Perform
(Maintained)

Table 1 : Investment Statistics (LMCEMENT; Code: 3794) Bloomberg: LMC MK

Net Net
FYE Revenue Profit EPS Growth PER C. EPS * P/NTA Gearing ROE GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009a 2,483.1 412.2 48.5 12.0 15.3 - 1.8 Net Cash 12.9 5.5
2010f 2,955.2 361.1 42.5 -12.4 16.4 45.0 1.8 Net Cash 10.3 6.0
2011f 3,040.7 418.2 49.2 15.8 14.1 52.0 1.8 Net Cash 11.4 5.8
2012f 3,042.2 430.0 50.6 2.8 13.7 55.0 1.8 Net Cash 11.7 4.3
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

RHBRI Vs. Consensus

♦ In line. Despite 1HFY12/10 core net profit of RM123.7m accounting for only Above
34.3-32.4% of our full-year forecast and the full-year market consensus, In Line
we consider this to be in line as we expect 2H10 to come in stronger on the Below
back of: 1) Stronger domestic cement selling prices (recall, domestic
Issued Capital (m shares) 849.7
cement prices were raised by 10% since May 10); and 2) Stronger domestic
Market Cap(RMm) 5,905.4
demand ahead arising from the rollout/resumption of several large-scale
Daily Trading Vol (m shs) 0.7
projects.
52wk Price Range (RM) 5.97 – 7.23

♦ Second Interim dividend of 8.0 sen. Lafarge declared a second interim Major Shareholders: (%)
Lafarge SA 62.2
single-tier DPS of 8.0 sen (payable on 13 Oct 2010), bringing total DPS YTD
EPF 6.8
to 16 sen (translating to a net yield of 2.3%). For the full-year, we expect
Lafarge to declare to total DPS of 38 sen, translating to a net yield of 5.5%.
FYE Dec FY10 FY11 FY12
♦ YoY. 1HFY12/10 net profit declined by 29.6% to RM123.7m from EPS Revision (%) - - -
RM175.7m a year ago and this was mainly due to: (1) Lower export volume Var to Cons (%) -5.6 -5.4 -8.0
and prices; (2) Lower domestic net selling prices in the first four months of
PE Band
FY10; (3) Lower contributions from the ready-mixed concrete operations;
and (4) Non-recurring plant repair costs and expenses.

♦ QoQ. 2QFY12/10 net profit rose by 57.4% to RM75.6m from RM48.1m and
PER
PER
=
=
20x
16x
PER = 12x
this was largely due to: (1) Higher domestic cement price arising from a PER = 8x
10% raise in domestic cement prices effective 1 May 10; (2) Lower plant
maintenance costs; and (3) The absence of certain one-off plant repair
costs.
♦ Future prospects. We expect Lafarge to benefit from the anticipated pick-
up in cement consumption from 2H10, on the back of the Relative Performance To FBM KLCI
rollout/resumption of several large-scale projects as well as the pick-up in
property development in the central region. Over the longer term, we
believe cement consumption is likely to be sustained on the back of the FBM KLCI

10MP.

♦ Risks to our view. The risks include: (1) Further delays in the
Lafarge Cement

implementation of public infrastructure projects, resulting in lower growth in

demand for cement; and (2) Influx of cheap imports.

♦ Forecasts. Unchanged.
Chye Wen Fei
♦ Investment case. Indicative fair value is RM6.88 based on 14x FY12/11 (603) 92802172
EPS of 49.2 sen. Maintain Market Perform. chye.wen.fei@rhb.com.my

Please read important disclosures at the end of this report.

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Table 2: Earnings Review (YoY Cumulative)

FYE Dec 2009 2010 % YoY Observations/ Comments
1H 1H Chg
Turnover 1,240.3 1,139.6 -8.1 Declined due to lower export volume and prices as well as lower
domestic net selling prices in the first four months of FY2010
Cement & clinker 1,036.6 930.9 -10.2
Others 301.0 290.7 -3.4
Eliminations -97.3 -82.0 -15.8
Total operating profit 199.4 154.6 -22.5 .
Cement & clinker 202.2 157.0 -22.4
Others -2.8 -2.4 -13.1
Net int inc/ (exp) -8.9 -2.6 -70.7
Associates 0.9 -3.5 -471.9 Singapore operations brought in losses
Pretax profit 191.5 148.5 -22.5 Due to lower export earnings and lower domestic selling prices,
dragged down further by higher production and maintenenance cost
and losses in Singapore operations
Taxation -19.9 -26.7 34.3 Higher taxation due to lower availability of reinvestment allowances
Minority interest 4.1 1.9 -53.7
Net Profit 175.7 123.7 -29.6 Filtered down from pretax profit
EPS (sen) 20.7 14.6 -29.6

Operating margin (%) 16.1 13.6 -2.5

Pretax margin (%) 15.4 13.0 -2.4
Net profit margin (%) 14.2 10.9 -3.3
Effective tax rate (%) 10.4 18.0 7.6

Table 3: Earnings Review (QoQ)

FYE Dec 2010 2010 % QoQ Observations/ Comments
1Q 2Q Chg
Turnover 548.4 591.2 7.8 Increased due to higher domestic cement
sales and domestic selling prices
Cement & clinker 447.3 483.6 8.1
Others 138.8 151.8 9.4
Eliminations -37.7 -44.3 17.4
Total operating profit 60.2 94.4 56.7 Margin improvement mainly due to better
domestic prices, lower plant maintenance
costs, and non-recurrence of certain one-off
plant repair costs and expenses
Cement & clinker 60.8 96.2 58.4
Others -0.5 -1.9 252.6
Net int inc/ (exp) -1.3 -1.3 -2.6
Associates -1.9 -1.6 -12.5
Pretax profit 57.0 91.4 60.3 Filtered down from operating profit
Taxation -9.9 -16.8 69.8
Minority interest 0.9 1.0 8.6
Net profit 48.1 75.6 57.4 Filtered down from pretax profit
EPS (sen) 5.7 8.9 57.4

Operating margin (%) 11.0 16.0 5.0

Pretax margin (%) 10.4 15.5 5.1
Net profit margin (%) 8.8 12.8 4.0
Effective tax rate (%) 17.3 18.4 1.0

Table 4: Earnings Forecasts Table 5: Forecast Assumptions

FYE Dec (RMm) FY09a FY10f FY11f FY11f FYE Dec FY10F FY11F FY12F
Turnover 2,483.1 2,955.2 3,040.7 3,042.2 Clinker Capacity (m tonnes p.a.) 7.9 7.9 7.9
Turnover growth (%) -1.9 19.0 2.9 0.1 Griding Capacity (m tonnes p.a.) 13.0 13.0 13.0

EBITDA 611.0 546.8 617.5 617.0 Exchange rate (RM/US$) 3.25 3.20 3.20
EBITDA margin (%) 24.6 18.5 20.3 20.3 Domestic/export ratio (%) 74:26 74:26 74:26

Depreciation -153.6 -145.5 -142.2 -139.2 Average domestic selling price

Net Interest -13.9 -11.0 -11.0 0.0 (RM/tonne) 272 285 285
Associates -1.5 12.0 12.0 12.0 Export price (US$/tonne) 40 40 40

Pretax Profit 441.9 402.4 476.3 489.8

Tax -35.7 -40.2 -57.2 -58.8
Minorities 6.0 -1.0 -1.0 -1.0
Net Profit 412.2 361.1 418.2 430.0
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
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“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
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This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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