RAM Ratings has reaffirmed the AA2/Stable/P1 ratings of Lafarge Malaysia Berhad’s (Lafarge Malaysia or the Group) RM350 million Islamic Securities Programme (2010/2017).

Published on 18 July 2016

RAM Ratings has reaffirmed the AA2/Stable/P1 ratings of Lafarge Malaysia Berhad’s (Lafarge Malaysia or the Group) RM350 million Islamic Securities Programme (2010/2017).

The ratings reflect Lafarge Malaysia’s established business position in the local cement sector. With 3 integrated cement plants strategically located across the peninsula and 2 grinding plants in Johor, the Group is capable of producing up to 15 million MT of cement annually by end-2016 (about 40% of the industry’s production capacity). Lafarge Malaysia’s highly integrated operations, strong operating expertise, and its ability to tap its parent’s R&D efforts and global network underpin the Group’s strong business profile. Meanwhile, its successful integration with Holcim Malaysia Sdn Bhd – acquired in November 2015 – will provide synergies in materials procurement and product distribution, improving the Group’s position in southern Peninsular Malaysia.

While competitive pressure and non-recurring integration expenses have dampened Lafarge Malaysia’s adjusted OPBDIT margins (1Q FY Dec 2016: 11.9%; FY Dec 2015: 17.9%), the Group’s financial profile is expected to stay superior. Against RM280 million of debt assumed for the acquisition of Holcim Malaysia, Lafarge Malaysia’s funds from operations debt cover remains strong in view of its cashflow-generating ability (1Q FY Dec 2016: 0.71 times; FY Dec 2015: 0.83 times). Lafarge Malaysia’s balance sheet stayed solid, with its adjusted gearing and adjusted net gearing ratios coming in at 0.12 times and 0.05 times, respectively, as at end-March 2016. Further substantial debt funding is not anticipated, as tapering capex requirements going forward will be sufficiently met by internal cash generation.

Nevertheless, Lafarge Malaysia’s susceptibility to volatile input prices as well as the cyclical construction and property sectors, on which demand for cement is highly dependent, remain key moderators of the Group’s credit profile. An expected 14% industry-wide increase in cement production capacity amid a more subdued construction sector in 2016 may continue to pose pricing pressure, as the supply of cement outpaces the demand for the commodity.

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Juliana Koay
(603) 7628 1169
juliana@ram.com.my