RAM Ratings reaffirms AA2/P1 ratings of Lafarge Malayan Cement’s Islamic debt facility

Published on 31 May 2013

RAM Ratings has reaffirmed the respective long- and short-term ratings of Lafarge Malayan Cement Berhad’s (“LMCB” or “the Group”) RM350 million Islamic Securities Programme (2010/2017) at AA2 and P1; the long-term rating has a stable outlook.

The reaffirmation of the ratings is premised on LMCB’s strong business profile as the largest integrated cement player in Malaysia; the Group owns 4 cement plants and has the largest installed capacity in the industry. The strategic location of its Langkawi plant coupled with its dedicated port facilities and access to a global distribution network via its parent, Lafarge S.A., provide LMCB the flexibility to shift excess production to overseas markets. Lafarge S.A. is one of the world’s leading players in the manufacture and sale of building materials. The Group’s financial profile remained superior as at end-2012, underlined by its minimal debt level, which translated into a net cash position and strong debt-coverage metrics.

Nonetheless, LMCB remains exposed to volatile input prices as well as the cyclicality of the construction and property sectors. Price undercutting, which had occurred in the past, has been a lesser issue in recent times, despite the debut of a new entrant in the domestic market. The Group’s operating profit before depreciation, interest and tax margin in FY Dec 2012 continued to be robust at above 20%. This said, RAM notes that additional capacities expected to come on-stream may pressure prices further in the event of insufficient demand. In the medium term, demand for cement is expected to be supported by fiscal spending on the construction sector, generated by projects under Budget 2012, the Tenth Malaysia Plan and the Economic Transformation Programme.

Media contact

Jason Tan

(603) 7628 1030

jasontan@ram.com.my