Lafarge Malaysia’s proposed acquisition of HMSB will be positive towards operational efficiency, cost reduction, capital expenditure and expansion of production capacity.
KUCHING: Analysts have mixed views on Lafarge Malaysia Bhd (Lafarge Malaysia) proposed acquisition of Holcim Malaysia Sdn Bhd (HMSB) from PT Holcim Indonesia for RM330 million.
While the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) opined that Lafarge Malaysia’s proposed acquisition of HMSB is expected to enhance its local and regional production capabilities, RHB Research Institute (RHB Research) is cautious on the proposed acquisition due to weaker construction activities in the local scene which might affect its financial performance.
RHB Research believed the soft construction activities for the remainder of this year might result in lower cement sales tonnage adding that the next wave of construction activities might gradually increase next year.
Besides that, the research firm is concerned about the potential negative impact of the appreciation of the US dollar against the ringgit.
RHB Research believes potential synergies from the proposed acquisition of HMSB by Lafarge Malaysia might require a certain period of time to be achieved.
At this juncture, RHB Research maintained its earnings forecast for Lafarge Malaysia as the research firm projected that the proposed acquisition of HMSB could just increase the cement producer’s earnings by approximately three per cent.
On another note, MIDF Research said Lafarge Malaysia’s proposed acquisition of HMSB demonstrated a regional integration of Lafarge Malaysia’s parent company, Lafarge global merger with Holcim which was completed on July 10, 2015.
“Lafarge Malaysia’s proposed acquisition of HMSB will be positive towards operational efficiency, cost reduction, capital expenditure and expansion of production capacity,” it said.
MIDF Research outlined that the proposed acquisition will increase Lafarge Malaysia’s production output through strengthening of its value chain in distribution channel and raw materials from an existing quarry in Johor hence improving its operational efficiency.
Additionally, Lafarge Malaysia could increase its cement output from 13 million metric tonne (MT) to 14.14 million MT through lower product cost by higher production volume.
On top of that, MIDF Research opined that Lafarge Malaysia can increased its distribution channel in Malaysia and potentially Indonesia, as this will facilitate better profit margin profile in total product sales.
The research firm explained that the scenario could be achieved as LaFargeHolcim’s five distribution hub and three integrated silo in Indonesia are located within close proximity.
Pending the completion of the conditional agreement, MIDF Research has put Lafarge Malaysia’s earnings forecast under review at this junture.
The research firm has also maintained its ‘neutral’ recommendation on Lafarge Malaysia’s stock with a fair value of RM10.15 per share.