Cement manufacturers play an important supporting role to the
construction, property and building materials industries especially we
always have big projects being announced every years. I checked through
the list and conducted a study in this industry throughout the weekend.
Currently, there is only 2 pure cement manufacturers listed in Bursa,
namely Lafarge Malaysia Berhad and Tasek Corp. The other listed player
is Cahya Mata Sarawak Berhad who is having a diversified businesses in
trading of building materials and road maintenance beside cement
segment. Besides that, YTL cement and CIMA who is the subordinate of UEM
Group also contributing to the cement industry.
Since it’s very hard to search info for CIMA, YTL Cement and Cahya
Mata Sarawak for comparison and breakdown, I’m concentrated on the pure
listed players. Tasek corp. is under the umbrella of Hong Leong group
while Lafarge is a French company and also the world largest cement
manufacturer with 180 plus years history, don’t play play.
Ever since the liberalization in year 2008, the cement
manufacturers able to adjust their selling price without the ceiling
price control from the government. This enable them to pass over the
escalating operating costs to their customers partially or fully.
In terms of market capital, Lafarge is larger than Tasek by around
4 times at around RM7.5bils market capitalization. The PE ratio for
both companies is around 19 times. Both companies also quite generous in
giving out dividends to the shareholders with Lafarge giving out 90% of
the net profit as dividends last financial year while Tasek went even
further by distributed more than 180% of the net profit as dividends.
The high dividend payout can explain the reason why the PE ratio of
Tasek is on par with Lafarge given its smaller market capitalization.
The dividend yields are around 4.6% and 9.4% for Lafarge and Tasek
respectively based on recent share price.
One thing to note here is that the compound annual growth rate for
cement industry is so low as in the case of Lafarge and Tasek. Both
companies only able to record around 2.5% CAGR in revenue for the past 5
years. Tasek able to record around 4.5% CAGR in net profit while
Lafarge only able to record a mere CAGR of 0.96% (Less than 1 percen L)
in net profit for the past 5 years. Gross profit margin and net profit
margin of Tasek is higher if compared to Lafarge. This shows that the
cement industry is quite saturated with limited growth ahead. Every
player is fighting for the same size of cake every year by offering
rebates to increase the volume. Tasek is better in managing its
operating cost and selling price by achieving a higher gross profit
margin.
Both companies are quite good in managing their working capital and
thus have a very good operating cash flow all these years. This
contributed to their high owners' earnings per sales. The good cash
generating ability of both companies give the owner chances to pay out
generous dividends. Apart from that, both companies keep their trade
receivable and payable in good condition. However, Tasek has higher
inventory turnover compared to Lafarge which in turn contribute to
higher cash conversion cycle. Both companies also spend certain amount
for capex every years but it will not affect their dividend payout
ability given by their strong balance sheet and cash generating
ability.
Both companies also in net cash position with negligible
borrowings. However, Tasek's cash balance in hands is so high that when
converted, it's around 21% of its market capitalization. Whoever want to
acquire the group can directly enjoy the high pile of cash in hands.
Due to the high amount of cash for Tasek, its current ratio is so high
at 7.0 compared to Lafarge who only managed to record around 2.23 ratio.
Currently, both also trading at a price to book value of around 2.xx.
On the other hand, Lafarge has higher ROE compared to Tasek group but
both also fall short of the 15% benchmark. Tasek has higher ROIC as a
result of the high amount of cash balance.
Tasek mainly is doing for domestic consumption while 5% of the
Lafarge's revenue came from its Singapore segment. Thus in general, the
cement players are fighting a price war with each other to gain volume
while as the same time constantly facing the escalating costs such as
utilities, labour, petrol, coal, raw materials as well as freight rates.
It's growth is limited but the demand is there whenever there is
construction works. Furthermore, both companies also in the business of
manufacture concrete but somehow the margin for this segment is quite
low. For some years, the concrete segment even recorded losses too for
both companies. The effect of the tariff hike since Jan this year
remained to be seen.
So in conclusion, the cement players will experience limited growth
unless they expand oversea, set up a manufacturing plant to supply for
their domestic demand. ROE considered mediocre but it's good to invest
for stable performance and receive dividends.
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