KUALA LUMPUR (May 29): Malayan Cement Bhd (KL:MCEMENT) rose on Friday as investors welcomed a set of stronger-than-expected results, but closed lower ahead of the long weekend.
The company, the largest cement producer in Malaysia by capacity, is on track for record profits this year after meeting 81% of the consensus full-year earnings forecast. However, concerns are rising at a time of high costs of coal, diesel, and electricity, analysts said.
“We expect a relatively softer quarter ahead,” RHB Research said. “However, we are still largely positive on its cost-control initiative,” the research house said and maintained its ‘buy’ call.
Prices of coal have soared amid a scramble to secure supply for power plants and other heavy industries as geopolitical conflict in the Middle East disrupted the global flow of oil and gas.
Coal, used to fire up Malayan Cement’s kilns to convert raw materials into clinker, the foundational ingredient for cement, makes up 20%-30% of its production costs. Diesel, meanwhile, makes up about 1%-2% of its direct cost.
Shares of Malayan Cement rose as much as 26 sen or nearly 4% to RM7.15. However, the stock ended the day at RM6.54, valuing the company at about RM9 billion, after declining 35 sen or 5%.
While off its lows, the stock is still down over 23% from the end of February, before the onset of the Iran war.
For Hong Leong Investment Bank, the near-term negatives are now largely priced in following a recent correction in Malayan Cement’s share prices.
“We believe any de-escalation of the Middle East conflict and retreat in coal prices could serve as key re-rating catalysts for the stock,” the house said and kept its recommendation at ‘buy’ for Malayan Cement.
The Bloomberg consensus is nearly unanimous post-results with five out of six analysts recommending 'buy' for the stock, and Affin Hwang Investment Bank has the sole 'hold' call on Malayan Cement. The average target price is RM9.08, implying potential upside of 28% in the next 12 months.