CGS-CIMB Research lifted its FY23 to FY25 earnings per share estimates for the company by 107%, 45% and 36%, respectively.
PETALING JAYA: Malayan Cement Bhd
(MCB) could generate higher free cash flow (FCF) with better profitability in financial years 2024 (FY24) and FY25 and pave the way for a maiden dividend payout in 2024.
CGS-CIMB Research believes MCB could generate a FCF of RM687mil-RM691mil in FY24 and FY25, assuming capital expenditure is RM100mil per year. This translates to an FCF of 52 sen per share.
It said all this could lead to MCB paying out maiden dividends next year, but post the injection of YTL Cement’s business into MCB.
YTL Corp Bhd still holds 77% of MCB which it acquired in 2019 for RM3.75 a share, translating to an FY21 enterprise value and earnings before interest tax depreciation and amortisation of 10-times, it said.
The research house is now modelling a dividend per share of seven to eight sen in FY24 to FY25 based on a payout ratio of 50%. It reiterated its “add” call on MCB with a target price of RM5.08 a share.
The key re-rating catalysts cited in its report are the rollout of mega projects such as the Mass Rapid Transport 3 and High Speed Rail, as well as a more sustained recovery in the property market.
However, the downside risks to its call include delays in rollout of these projects.
It also lifted its FY23 to FY25 earnings per share by 107%, 45% and 36% respectively to factor in higher blended average selling price (ASP) per tonne assumptions of RM326, RM354 and RM357 respectively.
Previously, it was RM309, RM347 and RM351 respectively.
It said the ASP had risen by 11% over the past six months to RM410 to RM420 per tonne and assuming rebates of RM50 per tonne, a net ASP of RM360 to RM370 per tonne.
It added that MCB delivered a strong third quarter FY23 (3Q23) net profit of RM63mil on the back of revenue growth of 25% year-on-year and 10% quarter-on-quarter.
It expects a gradual recovery in volumes (plus 2% in FY23 rising to plus 5% in FY24) and earnings in the medium term, buoyed by lower coal prices.
It said 3Q23 was still affected by high coal prices but it believes the lower coal costs will filter through in 4Q23, boosting earnings. The research house also said the revival of the High Speed Rail project is expected to be an added bonus.
It believes the cement industry may see further consolidation based on a recent media report that Khazanah Nasional Bhd’s-owned Cement Industries of Malaysia Bhd may be for sale.
This could be positive for MCB as the smaller cement players have been known to cut prices more aggressively, although CGS-CIMB Research understands this has since been abated.
