RAM Ratings reaffirms Lafarge Malaysia rating

RAM Ratings has reaffirmed the AA2/Stable/P1 ratings of Lafarge Malaysia Berhad's MYR350m (US$109m) Islamic Securities Programme (2010/2017).

The ratings are premised on Lafarge Malaysia's strong business and financial profiles despite the entry of a new player, rising costs and pricing pressure. "Lafarge Malaysia delivered a positive performance in FY December 2013. Its revenue and pre-tax profit rose by four per cent and 10 per cent YoY respectively. Lafarge Malaysia's financial profile remained superior as at end-2013, underlined by its minimal debt level, which translated into a net cash position and strong debt-coverage metrics,” RAM said.

The ratings agency does, however, warn that Lafarge Malaysia remains exposed to volatile input prices as well as the cyclicality of the construction and property sectors. "Price undercutting, which had occurred in the past, has been a lesser issue in recent times, notwithstanding a new entrant in the domestic market. The company's operating profit before depreciation, interest and tax margin in FY Dec 2013 continued to be robust at above 20 per cent. Looking ahead, we note that additional capacity expected to come on-stream may pressure prices further in the event of slower than expected demand growth," it highlighted.

With a capacity of 13Mta, Lafarge Malaysia is the biggest cement producer in Malaysia, commanding roughly 40 per cent of market share in the peninsula. The company also has the flexibility to shift excess production to overseas markets by leveraging on the global sales distribution network of its parent company, Lafarge SA, and its port facilities in Langkawi.

Overall, RAM maintains a positive outlook on the country's domestic demand, stating that: "demand for cement is envisaged to remain robust in the medium term, in light of the ongoing implementation of large-scale infrastructure projects. We have maintained a positive outlook on Malaysia's construction sector for 2014."