Malaysia - Infra Projects, Building Materials etc

[winston]

Cement prices may go up by year-end

By GURMEET KAUR

PETALING JAYA: Cement prices are expected to go up by the end of the year, following early signs of recovery that have come about as a result of the acquisition of Lafarge Malaysia Bhd
by YTL Cement Bhd.

Demand for cement is also seen to be picking up in the fourth quarter, as mega-infrastructure projects such as LRT3 and the East Coast Rail Link which have been approved are ready to start work.

According to UOB Kay Hian, based on its channel checks, cement prices could be raised by about 10% in the fourth quarter of 2019 (4Q19) to RM220 per tonne and go up further to RM250 per tonne in 2020 as the price war between players will likely ease as a result of industry consolidation.

YTL had launched a takeover of Lafarge Malaysia in May and now owns a 77% stake in the latter. They control more than half of the cement market.

Following that deal, there was a significant drop in Lafarge Malaysia’s operating cost in its 2Q19 even though cement prices have yet to be revised upwards.

Cement in Malaysia is currently priced at RM190 per tonne. In June this year, cement manufacturers had looked to increase prices of cement by 40%, citing high operating costs. But that decision was reversed after businesses raised concerns over the planned steep price hike.

A marginal price hike on a gradual basis would be more acceptable, according to analysts, given that construction companies were already grappling with cost increases such as from higher electricity tariffs over the past few years.

Back to Lafarge Malaysia, it narrowed its core net loss to RM46.4mil in 2Q19 as compared with RM77.1mil in the same period a year ago after cost declined substantially.

For the April-June period, Lafarge Malaysia’s cost of sales declined by 6.4% quarter-on-quarter (q-o-q) and 13.1% year-on-year (y-o-y). Selling and distribution expenses declined by 19.5% q-o-q and 30.9% y-o-y, while administrative expenses dropped by 12.0% q-o-q and 39.5% y-o-y, UOBKayHian noted in its recent report.

“We expect a gradual price hike to be the next agenda after YTL successfully brings down Lafarge’s operating cost, ” the research firm said.

On the other hand, if prices of cement remain unchanged, the second-half of financial year 2019 (2H19) will be the barometer to measure Lafarge Malaysia’s progress on cost management.

Alliance DBS in a recent report said it expects the company, which is proposing a name change to Malayan Cement Bhd, to further narrow its losses in 2H19 on the back of better cost control.

Analysts also expect the outlook for competitor HUME INDUSTRIES BHD to improve along with better sector prospects as cement demand picks up.

Hume posted a net loss of RM27.87mil in its fourth quarter ended June 30.

If cement prices are raised to RM220 per tonne, they are close to the breakeven point of Hume, according to UOBKayHian.

“For FY20, we have assumed a cement average selling price of RM250 per tonne and we forecast Hume to report earnings of RM38.8mil, ” it added.

Shares in Lafarge Malaysia closed four sen down to RM3.39, while Hume was up four sen to RM1.12 last Friday.

Source: The Star

https://www.thestar.com.my/business/bus ... wTiGyYM.99

[winston]

Thematic: Utilities players
Offer steady earnings and dividends amid market uncertainty

Trading Catalysts

Last week, the cabinet has released a 10-year Malaysia Electricity Supply Industry 2.0 (MESI 2.0) masterplan to reform the domestic power industry by introducing liberalisation across the industry from fuel sources, generation to transmission and distribution and retail in Peninsular Malaysia

Due to worries over potential competitions and earnings risks, utilities related stocks fell 4.5-15.2% from 3M high. Overall, we believe the selldown could be overdone as we do not anticipate immediate material earnings impact, given the gradual implementation only in 2021.

YTLPOWR remains HLIB sector top pick for its cheap valuations and attractive DY whilst technically attractive trading plays are JAKS (contributions from Vietnam power plant) and TADMAX (supported by news flow from the gas-fired power plant in Pulau Indah).

Technical view
YTLPOWR - Support: 0.725-0.735; Resistance: 0.785-0.815; LT target: 0.88; Cut loss: 0.72
JAKS - Support: 0.73-0.75; Resistance: 0.81-0.865; LT target: 0.885; Cut loss: 0.725
TADMAX - Support: 0.26-0.270; Resistance: 0.29-0.30; LT target: 0.33; Cut loss: 0.255

Source: Bloomberg, HLIB

[winston]

Building Materials – Malaysia

Small Steps To Recovery – Upgrade Hume To BUY

We overweight the cement subsector as it is on track for a recovery following industry consolidation.

There was a small price hike recently and we understand that it has been sustainable.

Meanwhile, local steel price continues to be under pressure as the supply glut has yet to be resolved and steel demand remains persistently weak.

Maintain MARKET WEIGHT on the building materials sector;

Upgrade Hume to BUY.

Source: UOBKH

https://research.uobkayhian.com/content ... 8292a3452d

[winston]

KLANG LOGISTICS CORRIDOR

Government to spend RM8.3bil for the Serendah-Port Klang Rail Bypass as well as a dedicated privatised highway for commercial vehicles connecting Northport and Westport.

Beneficiaries are likely to be Westports Holdings Bhd, MMC Corp, GAMUDA BHD, Sunway Construction Bhd, MUHIBBAH ENGINEERING (M) BHD and Gabungan AQRS Bhd.

Source: The Star

[winston]

Putrajaya to tender out three Pan Borneo Sabah packages worth RM925m in 1Q20

by Chester Tay

As at Sept 21 this year, the project was 21.3% completed, behind the 44.4% scheduled progress.

"Pan Borneo Sabah has three phases, when the project delivery partner (PDP) agreement was signed, and the 706 km stretch was divided into 35 packages," he said during Ministerial Question Time.

"As at Sept 21, 2019, when the PDP terminated, only 12 packages were awarded. One of them [was] terminated due to financial difficulties faced by [the] contractor, this was package 15, from Tawau to Semporna, while progress for the remaining 11 packages were 6% to 60% completed," he said.

So apart from the 12 packages, Baru said the government has agreed to award another three packages in 1Q20, namely packages 28, 29, and 30, which involve upgrading works at the Telupid and Beluran Exits, spanning almost 60km and costing RM925 million.

"The remaining 20 packages are expected to be tendered in the 12th Malaysia Plan (RMK12), between 2021 and 2025, provided it is approved by the federal government," he said.

Source: The Edge

https://www.theedgemarkets.com/article/ ... m925m-1q20

[winston]

Construction – Malaysia
The Final Countdown

Our channel checks indicate the government is working to expedite mega projects such as ECRL and PBHS, which are slated to be awarded from 4Q19.

Key beneficiaries are GAQRS, MRCB and niche contractors like Econpile.

Cement companies like Hume are also expected to benefit from improved cement demand.

Maintain MARKET

https://research.uobkayhian.com/content ... 3b05071693

[winston]

Construction – Malaysia
The Final Countdown

Our channel checks indicate the government is working to expedite mega projects such as ECRL and PBHS, which are slated to be awarded from 4Q19.

Key beneficiaries are GAQRS, MRCB and niche contractors like Econpile.

Cement companies like Hume are also expected to benefit from improved cement demand.

Maintain MARKET

https://research.uobkayhian.com/content ... 3b05071693

[winston]

Building Materials – Malaysia
Cement: Another Round Of Price Hike

We are OVERWEIGHT on the cement segment as earnings visibility is getting clearer after another round of price hike for bulk cement.

We expect cement prices to hover at the current RM235/tonne till end-19 and any further rise in prices may materialise in 1H20 as demand rises in tandem with more construction activities.

Maintain MARKET WEIGHT on the sector. Our top pick is Hume.

Source: UOBKH

https://research.uobkayhian.com/content ... 688ea6caca

[winston]

Building material sector weighed down by weak demand, says AmInvestment

by Nazuin Zulaikha Kamarulzaman

KUALA LUMPUR (Dec 10): AmInvestment Bank Research has maintained its "underweight" call on the building material sector and said the sector continues to be weighed down by weak demand.

In a note today, AmInvestment noted that it will upgrade its call on the sector if the government decides to pump-prime the economy with public projects, in the event of external shocks such as an unexpected slump in the global economy.

On the local front, the sector continues to be dragged down by weak demand, excess supply and policy risks.

The research house said that globally, China plans to raise steel production in 2020 despite slowing domestic demand.

"For aluminium, the steady consumption growth in China in 2020 will be more than met by the production growth," it said.

The research house projected an average steel bar price of RM2,000 per tonne in 2020F, down from its previous assumption of RM2,100 per tonne.

It said industry experts forecast steel surplus in China to rise to 196 million tonnes in 2020F (+13% from 174 million tonnes estimated in 2019) as production is projected to grow 1% to 2% while consumption is projected to contract by 1.4%.

"We project an average cement price in Peninsular Malaysia of RM195 per tonne in 2020F (revised up from RM190 per tonne we assumed previously)," AmInvestment said.

AmInvestment expects a very gradual rise in cement prices as the supply tightens.

With YTL Cement Bhd taking over Lafarge Malaysia Bhd in 2019, AmInvestment believes that the fight for market share will ease, paving the way for players to shut down underutilised plants to optimise operations.

According to the research house, in terms of cement consumption in Peninsular Malaysia, it projects a 3% decline to 14.6 million tonnes in 2020 (from 15 million tonnes estimated in 2019) on subdued public infrastructure construction activities as the government tightens its belt, coupled with the still challenging property market.

Typically, during a property boom, the property sector consumes about two thirds of total cement production, while the balance one third goes to the construction sector.

AmInvestment projected an average aluminium price of US$1,850 per tonne in 2020F, which was unchanged from its previous assumption and as compared with an average of about US$1,900 per tonne over the last three years to reflect the uncertain global economic outlook against a backdrop of the lingering US-China tension that hurts demand and prices of commodities in general.

Source: The Edge

https://www.theedgemarkets.com/article/ ... investment

[winston]

Prime time for pump priming?

Development expenditure to accelerate in 2020; 12MP to provide more clarity

Imminent signing for Bandar Malaysia to lift sentiment; government could introduce more pump priming measures in 2020 to boost economy

Contractors continue to look abroad

Top picks: Gamuda and Sunway Construction

Source: DBS

https://researchwise.dbsvresearch.com/R ... =fadchkhab