Date of Report
28 October 2024
Broker Name
UOB Kay Hian
Company Overview
Hume Cement Industries is an emerging player in the Malaysian cement market and ranks as the third-largest cement producer in terms of capacity. The company is recognized for its strategic market positioning and capacity to meet evolving construction demands.
Stock Data
- Share Price: RM3.38
- Target Price: RM5.10 (previously RM5.40)
- Upside: +50.9%
- Bloomberg Ticker: HUME MK
- Shares Issued: 725.5 million
- Market Cap: RM2,524.7 million (US$579.9 million)
- 3-Month Average Daily Turnover: US$0.2 million
- 52-Week High/Low: RM3.97/RM1.59
Recent Performance
- Price Performance:
- 1 Month: +5.5%
- 3 Months: -6.5%
- 6 Months: +40.1%
- 1 Year: +114.3%
- Year-To-Date: +57.5%
Earnings Outlook
Current Developments
Despite the slower-than-expected rollout of mega infrastructure projects by the government, Hume Cement Industries is positioned to achieve commendable earnings in FY25. This is driven by several smaller infrastructure projects, such as the Penang LRT, along with stable demand from the private sector.
Forecast Adjustments
The forecast for FY25/26 earnings has been downgraded by 12% and 14%, respectively. This adjustment accounts for anticipated lower cement prices and reduced output volume.
Q1 FY25 Expectations
Hume is expected to report higher earnings in 1QFY25 due to:
- Longer working days
- A stable average selling price (ASP) for cement
- A stronger ringgit against the US dollar, reducing coal costs despite a slight increase in coal prices.
Channel checks indicate that bulk cement ASPs have rebounded from RM250-270/mt in 4Q21 to RM380/mt currently. Additionally, lower coal prices and improved clinker capacity utilization are anticipated to enhance Hume’s earnings and margins.
Dividend Outlook
The company declared a dividend per share (DPS) of 8 sen in FY24, reflecting a payout ratio of 27%. Following the recent sale of its Penang Prai Industrial Estate for RM39.8 million, which generated a net gain of RM32.2 million, the company’s debt profile has improved. Projections for FY25 indicate a net DPS of 13 sen, resulting in a projected yield of 3.8%.
Market Challenges
The rollout of significant mega infrastructure projects has been delayed, as highlighted by the Prime Minister during the 2025 Budget presentation. Notable absences from the budget include MRT3 and HSR. However, two projects, the Johor Rapid Transit System (RTS) and the Penang LRT, are expected to serve as major catalysts in 2025.
Financial Highlights
-
Net Turnover:
- FY2023: RM1,014 million
- FY2024: RM1,205 million
- FY2025 (Forecast): RM1,300 million
-
EBITDA:
- FY2023: RM167 million
- FY2024: RM353 million
- FY2025 (Forecast): RM385 million
-
Net Profit:
- FY2023: RM60 million
- FY2024: RM211 million
- FY2025 (Forecast): RM235 million
Risks and Recommendations
Key risks include weaker-than-expected cement demand, surges in coal prices, and potential government intervention regarding pricing. Despite these challenges, the recommendation is to maintain a “BUY” rating with a revised target price of RM5.10 based on a forward PE multiple of 15x for FY25.
