KUCHING: Cementmaker Lafarge Malaysia Bhd (Lafarge Malaysia) experienced a core net loss of RM102 million for the first six months of 2017 (1H17) which was broadly in-line with analysts’ expectation but was substantially off consensus estimate of RM67 million.
Researchers with Kenanga Investment Bank Bhd (Kenanga Research) deemed the results as broadly in-line as its expects 2H17 to return into the black, underpinned by healthier rebates and increased cement demand from the acceleration of infrastructure construction activities.
“On the other hand, we believe consensus could be overly bullish due to lower rebates assumptions,” it saidon Lafarge’s results announcement. “No dividends were declared for the fourth consecutive quarter, which was within our expectation as we expect no pay-out this year.
“Note that this is the second consecutive quarter that Lafarge Malaysia registered a loss.”
Year on year, the core net loss of RM102 million in 1H17 deteriorated against 1H16’s core net loss of RM42.5 million stemming from weaker cement revenue by 25 per cent. This was due to higher rebates and lower volume of cement sales, it said, on the back of a more competitive environment.
Market demand shrank from slower construction activities, while supply capacity from the cement manufacturers increased by 16 per cent from additional new plants in FY16, it added.
“Quarter on quarter, its loss position in the second quarter of 2017 (2Q17) of RM44.1 million improved from 1Q17’s loss position of RM57.9 million despite the lower revenue recorded due to lower depreciation charges and lower rebates being dished out from their cement division leading to a narrowing loss position. Based on channel checks, we note that cement rebates have been relatively better and more stable at circa 20 to 25 per cent since the beginning of July compared to 1H17 when rebates were relatively more volatile in the 30 to 50 per cent range.
“The previous high rebates were likely due to the weak demand on top of an enlarged capacity of cement manufacturers in FY16.
“Moving forward, we expect 2H17 to register better results on the back of more stable demand and rebates from the gradual pick-up in demand from increased infrastructure works as major projects dished out last year enter into more advanced stages. That said, we believe the recovery in earnings could still be insufficient to reverse out the losses registered in 1H17.”