Lafarge Malaysia contract win and new mill purchase positive

Lafarge Malaysia’s recently-awarded MYR254m (US$72.6m) concrete supply contract and its purchase of a cement mill from Lafarge Ciment (Romania) are being viewed as positive for the company by Hong Leong Investment Bank (HLIB).

The research house said the five-year contract to supply the Refinery and Petrochemicals Integrated Development project and other Petronas-related projects in Pengerang, Johor, is in line with its positive outlook on the company.

Meanwhile, the mill and ancillaries purchase worth MYR45.96m would generate costs savings compared with buying new mill from a different party, HLIB notes. Under the deal, Lafarge Ciment will supply to Lafarge Malaysia the assets, including the main machine, auxiliaries, electrical, instrumentation, automation parts inclusive of commissioning spare parts. These ancillaries are in an unused state and condition as first received by Lafarge Ciment.

HLIB has maintained its forecasts on Lafarge Malaysia as the impact from the acquisition is immaterial and the contract awarded is in line with its view. It cited catalysts to the acquisition which include timely implementation of Economic Transformation Programme (ETP) projects and sustainable demand from property development projects.

The risks outlined by the research house include delays in the implementation of projects under the ETP, which could result in lower-than-expected demand for cement consumption, intensification of price war, and steep rise in energy prices, especially coal and electricity.