PETALING JAYA: Hume Cement Industries Bhd
is expected to post robust earnings for its financial year ending June 30, 2025 (FY25), underpinned by stable demand for cement.
Despite the slower-than-expected rollout of mega infrastructure projects by the government, smaller projects such as the Penang Light Rail Transit (LRT) system and demand from the private sector could support the cement manufacturer’s growth, according to UOB Kay Hian Research (UOBKH Research).
The research house maintained its “buy” rating on Hume Cement, with a slightly lower target price of RM5.10 a share compared with RM5.40 previously.
UOBKH Research said the lower target prices was in tandem with a downgrade in its FY25 and FY26 earnings estimates for Hume Cement, primarily due to lower cement prices and lower clinker utilisation rate as a result of the slower-than-expected rollout of mega infrastructure projects.
“We anticipate cement prices will remain sustainable as construction activity is poised to increase this year. Projections indicate cement prices will, at a minimum, hold steady at RM380 per tonne,” the research house wrote in a report.
“Based on our channel checks, cement prices touched peak levels of RM400 per tonne for only four months out of a decade at pre-Covid-19 levels. However, when adjusted for inflation, the real cement price stands at RM470 per tonne, indicating room for upside from the current cement price of RM380 per tonne,” it added.
Simultaneously, coal prices, a primary input cost for cement players, are expected to fall further due to global decarbonisation initiatives, UOBKH Research said.
“That said, we expect cement players to report robust year-on-year earnings growth in FY25, supported by higher cement prices and increased output volume,” it added.
UOBKH Research noted that while there was a delayed rollout of mega infrastructure projects at the Budget 2025 presentation, two key projects were highlighted – the Johor Rapid Transit System (RTS) and Penang LRT systems.
“These projects, with a combined construction cost of RM15bil to RM16bil, are expected to be major catalysts in 2025, particularly as the Penang LRT could begin as early as next year. Given that cement typically constitutes 15% to 20% of construction costs, this translates into a potential RM2.4bil to RM3.4bil demand for cement, further boosting the cement demand outlook,” the research house said.
UOBKH Research also expected better utilisation rates with an uptick in construction activity.
“The industry is expected to grow in 2025 with utilisation rates normalising as construction activity rebounds with the acceleration of infrastructure projects and some housing projects. This will lead to stronger demand and stable prices, which will underpin improvements in the earnings outlook,” the research house said.
UOBKH Research said the company’s dividend outlook for FY25 would improve, thanks to consistently strong profits and cash flow.
Hume Cement declared a dividend per share (DPS) of eight sen in FY24, resulting a payout ratio of 27%. The recent sale of ifs Penang Prai Industrial Estate for RM39.8mil would generate a net gain of RM32.2mil, further improving the group’s debt profile.
“As a result, we expect an improved DPS outlook for 2025-2026, with a projected payout ratio of 40%. For 2025, we estimate a net DPS of 13 sen, translating to a net dividend yield of 3.8%,” UOBKH Research said.
