Published on 26 June 2014
RAM Ratings has reaffirmed
the AA2/Stable/P1 ratings of Lafarge Malaysia Berhad’s (Lafarge Malaysia or the
Company) RM350 million Islamic Securities Programme (2010/2017).The ratings are premised on Lafarge Malaysia’s strong business and financial profiles. With an annual capacity of 13 million MT, Lafarge Malaysia is the biggest cement producer in Malaysia, commanding roughly 40% of market share in the peninsula. The Company also has the flexibility to shift excess production to overseas markets by leveraging on the global sales distribution network of its parent company, Lafarge S.A., and its port facilities in Langkawi.
Despite the entry of a new player, rising costs and pricing pressure, Lafarge Malaysia delivered a positive performance in FY Dec 2013. Its revenue and pre-tax profit rose by 4% and 10% y-o-y, respectively. Lafarge Malaysia’s financial profile remained superior as at end-2013, underlined by its minimal debt level, which translated into a net cash position and strong debt-coverage metrics.
Nonetheless, Lafarge Malaysia 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, notwithstanding a new entrant in the domestic market. The Company’s operating profit before depreciation, interest and tax margin in FY Dec 2013 continued to be robust at above 20%. Looking ahead, we note that additional capacity expected to come on stream may pressure prices further in the event of slower than expected demand growth. Nevertheless, demand for cement is envisaged to remain robust in the medium term, in light of the ongoing implementation of large-scale infrastructure projects. We have maintained a positive outlook on Malaysia’s construction sector for 2014.
Jason Tan
(603) 7628 1030
jasontan@ram.com.my
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