Five shortlisted for possible sale of Cement Industries

TheEdge Mon, Mar 04, 2024 04:00pm - 2 months View Original


This article first appeared in The Edge Malaysia Weekly on February 26, 2024 - March 3, 2024

FIVE companies — Germany-based Heidelberg Materials AG; China-based Huaxin Cement Co Ltd; Malaysian Resources Corp Bhd (MRCB), a company which is connected to Yinson Holdings Bhd; and companies linked to Pahang and Negeri Sembilan royalty — have been shortlisted to buy Cement Industries of Malaysia Bhd (CIMA), a wholly-owned subsidiary of UEM Group Bhd.

According to sources, the foreign companies would likely need to form a consortium with local bumiputera parties holding a majority stake, but little information was available at press time.

“It is a long process as there are certain criteria that need to be met before UEM can decide if it wants to sell CIMA. The conditions include the right price, technical capabilities, especially in addressing the ESG (environmental, social and governance) factors, as well as ensuring bumiputera ownership remains intact,” a source tells The Edge.

It is worth noting that CIMA has been the main supplier for most bumiputera contractors in Malaysia.

“At the end of the day, it boils down to pricing — if UEM [Group] deems it worth selling,” says a market observer.

The highest bidders are the foreign outfits, Heidelberg Materials and Huaxin Cement. Heidelberg Materials is listed on the DAX, has a market capitalisation of just below US$17 billion (RM81 billion) and is one of the world’s largest building materials companies. Huaxin Cement is about a third controlled by Holchin BV, a unit of Holcim Ltd (formerly known as LafargeHolcim), a Swiss giant multinational corporation that specialises in cement and related products.

It is not clear at this juncture whether Yinson, an oil and gas (O&G) company, is bidding or if it is Yinson Legacy Sdn Bhd, the vehicle of Yinson Holdings’ executive chairman Lim Han Weng,  who holds 19.71% equity interest in the O&G giant.  His son, Lim Chern Yuan, is its CEO.

It is also not clear if the Yinson bid is a standalone or in partnership with a bumiputera company.

Asked to comment, Yinson’s external media and investor relations outfit merely tells The Edge, “Yinson [Holdings] is not buying any cement companies.”

As for MRCB, the bid makes sense as construction and property development are the company’s mainstay.

The possible sale of CIMA emerged last year when UEM Group was approached for a potential acquisition of the company. However, it is learnt that the group was not very keen to sell CIMA at that juncture. Nevertheless, it opened up the offer into a bid and undertook a valuation exercise for its cement manufacturing assets.

UEM Group declined to comment.

For its financial year ended Dec 31, 2022 (FY2022), CIMA reported an after-tax profit of RM7.11 million on the back of RM1.06 billion in revenue. Checks on the Companies Commission of Malaysia website show that CIMA turned the corner in FY2022 after at least four years of losses.

It is worth noting that the company suffered a pre-tax loss of RM40.71 million in FY2022, so the profit registered could have been derived from either taxation gains or other non-operational earnings. In FY2021, CIMA had an after-tax loss of RM64.57 million on RM710.78 million in sales.

At end-2022, CIMA had total assets of RM1.53 billion against RM778.14 million in total liabilities while its retained earnings stood at RM379.82 million. The company’s main asset is Negeri Sembilan Cement Industries Sdn Bhd, which chalked up an after-tax profit of RM20.23 million from RM1.04 billion in revenue for the financial year ended Dec 31, 2022. It suffered a pre-tax loss of RM27.71 million in FY2022.

It was reported earlier that the possible sale of CIMA could value the company at RM1 billion. However, the price tag could be higher considering that it returned to the black in FY2022 and expects better results on the back of increasing demand due to the revival of major infrastructure projects.

Other major players in the cement industry include YTL Cement Bhd, which also controls 78.58% of Malayan Cement Bhd (formerly LaFarge Malaysia Bhd), Hume Cement Industries Bhd and Tasek Corp Bhd. Hume is controlled by billionaire businessman Tan Sri Quek Leng Chan of the Hong Leong group, who is among the richest individuals in the country, while Tasek is wholly owned by Singapore-listed Hong Leong Asia Ltd.

The last mergers-and-acquisitions exercise in the cement industry took place in 2019 when Malayan Cement emerged as the country’s largest cement producer with a market share of more than 60%.

Subsequently, in 2021, YTL Cement bought a 51% stake in Malayan Cement for RM1.63 billion cash or RM3.75 per share from Associated International Cement Ltd (AICL). It then launched a mandatory general offer to buy the rest of the shares in the company, raising its stake to almost 77%. Today, YTL Corp owns 78.6% of Malayan Cement.

Malayan Cement has an annual total production capacity of 25.1 million tonnes, followed by CIMA with 7.2 million tonnes, Hume Cement Industries Bhd at 3.6 million tonnes and Tasek Corp Bhd with 2.3 million tonnes. In Sabah, the cement industry is dominated by Cement Industries (Sabah) Sdn Bhd and in Sarawak, by Cahya Mata Sarawak Bhd. 

 

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