Comprehensive Analysis of Hume Cement Industries Bhd – November 2024 Report
Comprehensive Analysis of Hume Cement Industries Bhd – November 2024 Report
Broker: UOB Kay Hian
Date: Friday, 15 November 2024
Overview
This report delves into the financial performance and future outlook of Hume Cement Industries Bhd, an emerging player in the Malaysian cement industry. We provide a comprehensive analysis of the company’s recent quarterly results, market performance, and key factors influencing its growth trajectory. The report also includes detailed financial projections and valuation recommendations.
Company Description
Hume Cement Industries Bhd (HUME MK) is an emerging cement player and ranks as the third-largest cement producer in Malaysia by capacity. The company has shown significant growth potential and is a key player in the materials sector.
Stock Data
- GICS sector: Materials
- Bloomberg ticker: HUME MK
- Shares issued: 725.5 million
- Market cap: RM2,481.2 million (US\$553.2 million)
- 3-month average daily turnover: US\$0.2 million
Stock Performance
Hume Cement Industries Bhd’s stock has shown impressive performance over the past year, with a 52-week high/low of RM3.97/RM1.78. The stock has appreciated by 4.6% in the past month, 3.3% over three months, 9.9% over six months, and a remarkable 88.0% year-to-date.
Major Shareholders
- Hong Leong Manufacturing Group: 72.8%
- Public SmallCap: 1.9%
- Goon Khing Khing: 1.4%
Financial Highlights
In the first quarter of FY25, Hume Cement Industries reported a core net profit of RM47.4 million, which represents a 12% increase quarter-on-quarter but a 2% decrease year-on-year. This accounted for only 20% of the full-year forecast due to weaker-than-expected market demand, despite stable cement average selling prices (ASP) at RM380 per metric ton.
Quarterly Results
| Year to 30 Jun |
1QFY25 |
qoq % chg |
yoy % chg |
1QFY24 |
yoy % chg |
| Revenue (RMm) |
283.7 |
6.7 |
(7.5) |
283.7 |
(7.5) |
| EBITDA (RMm) |
82.9 |
6.3 |
(4.5) |
82.9 |
(4.5) |
| Operating profit (RMm) |
64.9 |
7.9 |
(6.6) |
64.9 |
(6.6) |
| Finance costs (RMm) |
(3.5) |
(1.0) |
(40.2) |
(3.5) |
(40.2) |
| PBT (RMm) |
61.9 |
8.4 |
(3.1) |
61.9 |
(3.1) |
| Tax (RMm) |
(14.5) |
(0.8) |
(7.0) |
(14.5) |
(7.0) |
| PAT (RMm) |
47.4 |
11.6 |
(1.9) |
47.4 |
(1.9) |
| Core Profit/Loss (RMm) |
47.4 |
11.6 |
(1.9) |
47.4 |
(1.9) |
Margins
| Margins (%) |
+/- ppt |
+/- ppt |
+/- ppt |
| EBITDA margin |
29.2 |
(0.1) |
0.9 |
| EBIT margin |
22.9 |
0.2 |
0.2 |
| PBT margin |
21.8 |
0.3 |
1.0 |
| Net margin |
16.7 |
0.7 |
1.0 |
Key Financials
| Year to 30 Jun (RMm) |
2023 |
2024 |
2025F |
2026F |
2027F |
| Net turnover |
1,014 |
1,205 |
1,129 |
1,307 |
1,344 |
| EBITDA |
167 |
353 |
340 |
390 |
420 |
| Operating profit |
99 |
296 |
285 |
338 |
370 |
| Net profit (rep./act.) |
60 |
211 |
201 |
241 |
266 |
| Net profit (adj.) |
60 |
211 |
201 |
241 |
266 |
| EPS (sen) |
8.3 |
29.1 |
27.7 |
33.2 |
36.7 |
| PE (x) |
41.2 |
11.8 |
12.3 |
10.3 |
9.3 |
| P/B (x) |
5.8 |
4.2 |
3.5 |
2.9 |
2.4 |
| EV/EBITDA (x) |
14.9 |
7.1 |
7.4 |
6.4 |
5.9 |
| Dividend yield (%) |
0.0 |
2.3 |
3.2 |
3.9 |
4.3 |
Dividend Outlook
Thanks to consistently strong profits and cash flow generation, Hume declared a dividend per share (DPS) of 4 sen in 1QFY25, compared to 2 sen in 1QFY24. With a payout ratio of 40%, the FY25 net DPS is anticipated to be 11.1 sen, translating to a net dividend yield of 3.2%. Additionally, the group is undertaking a strategic review of its non-core businesses and assets, which could potentially result in higher dividend payouts.
Stock Impact
During the 2025 Budget presentation, Prime Minister Anwar Ibrahim indicated a delay in the large-scale rollout of mega infrastructure projects like MRT3 and HSR. However, key projects such as the Johor Rapid Transit System (RTS) and the Penang Light Rail Transit (LRT) were highlighted. These projects, with a combined construction cost of RM16 billion to RM19 billion, are expected to be major catalysts in 2025. Cement typically constitutes 15-20% of construction costs, translating into a potential RM2.4 billion to RM3.8 billion demand for cement, further boosting the cement demand outlook.
2025 Cement Outlook
The 2025 cement outlook remains steady, with expectations for cement prices to remain sustainable as construction activities stabilize. Projections indicate that cement prices will hold steady at RM380 per metric ton. Notably, peak levels of RM400 per metric ton were observed for only four months out of a decade at pre-COVID-19 levels. Adjusted for inflation, the real cement price stands at RM470 per metric ton, indicating room for an upside from the current price of RM380 per metric ton.
Simultaneously, coal prices, a primary input cost for cement players, are expected to fall further due to global decarbonization initiatives. Consequently, cement players are expected to report robust year-on-year earnings growth in FY25, supported by high cement prices and stable production volumes.
Earnings Revision and Risk
The report downgrades FY25/26/27 earnings by 14%/6%/5% respectively, primarily due to a lower clinker utilization rate driven by softer market demand. A sensitivity analysis indicates that a RM10 per metric ton increase in cement prices in FY25 would boost Hume’s annual earnings by 10%.
Valuation and Recommendation
The report maintains a BUY recommendation for Hume Cement Industries Bhd with a lower target price of RM4.60, based on 15x FY25F PE. This is a slight premium compared to the 14x forward PE of regional peers, reflecting a slightly better cement outlook in Malaysia.
The company is favored for its strong clinker capacity with a healthy utilization rate and better cost management. Gradual improvement in FY25 results is expected due to better demand from the resumption of construction activities, recovery of cement average selling prices (ASP), and effective cost rationalization.
Environmental, Social, and Governance (ESG) Updates
Environmental
- The group’s Gopeng cement plant holds ISO 14001 certification for environmental management systems.
- The group has planted 570 trees in its plant in Gopeng.
- The group has progressively reduced around 9% of its CO2e emissions since 2019.
Social
- Collectively, the group has provided over 7,000 hours of safety training to its employees.
Governance
- The group’s FTSE Russell ESG rating increased to 3.8 from 2.3.
- 100% of Hume’s plants have received ISO 37001 certification for anti-bribery and anti-corruption.
Key Assumptions
| Year to 31 Dec |
2024 |
2025F |
2026F |
2027F |
| Cement prices (RM/mt) |
375 |
380 |
390 |
400 |
| EBITDA margin (%) |
29.3 |
30.1 |
29.8 |
31.2 |
| Net margin (%) |
17.5 |
17.8 |
18.4 |
19.7 |
Profit & Loss Summary
| Year to 30 Jun (RMm) |
2024 |
2025F |
2026F |
2027F |
| Net turnover |
1,205.2 |
1,128.6 |
1,306.8 |
1,344.3 |
| EBITDA |
353.3 |
339.7 |
389.6 |
419.9 |
| Deprec. & amort. |
57.2 |
54.4 |
51.8 |
49.5 |
| EBIT |
296.2 |
285.3 |
337.8 |
370.5 |
| Net interest income/(expense) |
(16.8) |
(21.1) |
(21.1) |
(21.1) |
| Pre-tax profit |
279.4 |
264.2 |
316.7 |
349.3 |
| Tax |
(68.4) |
(63.4) |
(76.0) |
(83.8) |
| Minorities |
0.0 |
0.0 |
0.0 |
0.0 |
| Net profit |
210.9 |
200.8 |
240.7 |
265.5 |
| Net profit (adj.) |
210.9 |
200.8 |
240.7 |
