KUCHING: Analysts believe Lafarge Malaysia Bhd (Lafarge) will make a net loss of RM23 million in financial year 2017 forecast (FY17F) from a net profit of RM12 million previously.

AmInvestment Bank Bhd (AmInvestment Bank) who were slightly disappointed after a recent visit to the company, also cut FY18 and FY19F net profit forecasts by 29 per cent and 15 per cent respectively.

According to AmInvetment Bank, Lafarge remains cautious on sales volumes over the short term, as the pace of the rollout of mega infrastructure and property projects has been slower than expected.

It noted that Lafarge only expects to see a more meaningful pick-up in cement demand from the second half of 2018 (2H18), as these projects will have gathered stronger momentum by then.

AmInvestment Bank therefore lowered its FY17-19F sales volume assumptions to 7.8 million metric tonnes (MT), 8.4 million MT and 9.1 million MT, from 8.1 million MT, 9.1 million MT and 9.3 million MT previously.

“In the meantime, to optimise its operations, Lafarge has temporarily taken certain production lines off-line, pending the pick-up in demand,” the research firm said.

AmInvestment Bank has however highlighted Lafarge as saying that the effective cement selling prices have started to recover, albeit marginally, from the third quarter of FY17 (3QFY17), and should continue to trend up for the remainder of the year, in 2018 and beyond.

“This follows the increasing realisation by players in the industry that it does no good to anyone by continuously absorbing the rising production costs, resulting in depressed margins or losses.”

The research firm was more inclined to wait and see if this materialises, and therefore kept its FY17-19F average selling price (ASP) assumptions at RM245 per MT, RM255 per MT and RM265 per MT respectively.

Year to date (YTD), the research firm estimated that cement ASP had averaged at RM250 to RM260 per MT.

On capital expenditure (capex), AmInvestment Bank noted that Lafarge had guided for RM250 million annually, largely for the upgrading of the group’s existing plants to improve efficiency which will translate to cost savings.

Overall, AmInvestment Bank liked Lafarge because the group is the dominant player in the cement sector in Peninsular Malaysia with a 40 per cent market share, making it a good proxy for public infrastructure spending.

Additionally, Lafarge practises strong environmental, social and governance (ESG) standards, the research firm pointed out.

“However, while the demand for cement will pick up over the near term thanks to the rollout of key mega infrastructure projects, it may not immediately absorb the expanded industry capacity stemming from aggressive capex by key players in recent years,” AmInvestment Bank said.