“With nothing concrete to justify yesterday’s share price performance, we feel that investor’s should take this opportunity to sell into strength. Downgrade to ‘sell’ (from ‘hold’) with unchanged target price of RM1.81,“ said Hong Leong Investment Bank (HLIB) Research in a note last Friday.
Kenanga Research also downgraded Lafarge Malaysia Bhd to “underperform”, while its target price remains unchanged at RM1.85.
The stock hit limit up to a high of RM2.60 last Thursday before paring gains to close at RM2.35. On Friday, it fell 10 sen or 4.3% to RM2.25 on 2.17 million shares done.
HLIB Research pointed out that the spike in Lafarge’s share price could be due to the corporate exercises taken by its parent company Lafarge Holcim in Southeast Asia recently, involving PT Lafarge Holcim Indonesia and Holcim Philippine Inc.
“Based on these latest corporate exercises, this may have led investors to speculate that the Malaysia outfit could be next in line for sale by its parent company.”
The research house said in comparison with its sister companies in Indonesia and the Philippines, Lafarge Malaysia does look like an attractive takeover target given its current price-to-book (P/B) multiple of 0.78 times.
“However, on the flip side, given the huge P/B valuation gap between the Malaysia unit against Indonesia and the Philippines, we reckon it is unlikely that the parent company will be willing to sell cheap.”
Apart from that, HLIB Research said the possible revival of the East Coast Rail Link project may also have stirred up some positive sentiment amongst cement players.
Kenanga Research noted that it remains cautious over Lafarge’s outlook in 2019 due to weak domestic demand woes and continuous overcapacity in the market leading to stiff competition and cement rebates wars.
“The group’s export strategy may partially help to drive revenue but given generally low margins from export sales, we do not expect any immediate significant bottom-line improvements.”
Lafarge is expected to post a narrowed net loss of RM241 million in 2019 compared with RM318 million in 2018.
“With narrowing losses, we expect our valuation basis to hold for now and will only re-rate upon firm earnings recovery to the black.”
Source: The Sun Daily