Cement counters lead the way in upward cycle. Can the trend continue?

 Cement counters lead the way in upward cycle. Can the trend continue?



Hume Cement Industries Bhd surged 31% to close at its 52-weeks of RM1.26.


Investors are positive the company reported strong third quarter earnings.


Hume Cement's net profit for the third quarter ended March 31, 2023 rose to RM27 million from RM1.9 million a year earlier on revenue of RM289 million versus RM191.8 million.


The better revenue and earnings were mainly due to revision in cement retail selling price and higher cement sales value.


For the nine months ended March 31, Hume Cement posted a net profit of RM19.4 million versus a net loss of RM1.8 million on revenue of RM751 million versus RM513.3 million.


The counter fared well to rise to the current level from a low of 76 sen.


The positive sentiments are expected to continue with the pick up in demand for cement.


Other than Hume, Malayan Cement Bhd also saw an uptrend, gaining 7.3% to reach RM2.64 on March 17.


But there are concerns on Hume’s huge debt levels of RM624 million versus total equity of RM363 million.


In addition, there is the issue of overcapacity in the cement industry compounded by cheaper imports when local prices go up.


On a positive note, RHB Investment Bank Research expects cement sector to be looking optimistic, due to relaxing Covid-19 restrictions in China and expectations of the rate hike cycle entering its tail-end.


As such, it foresees commendable quarterly earnings from Malayan Cement, which is in the basic materials sector.


The research house anticipates earnings of Malayan Cement to be buoyed by sustained cement average selling prices (ASPs) and a sequentially lower cost of production.


The sustained cement ASPs stays elevated at RM390/tonne as of March (flat month-on-month [MoM]) due to the elevated time lag in passing through the spike in coal prices by local cement producers.


RHB stays optimistic on the cement sector due to the recent sharp correction in key raw material prices, ie coal (around 50% of total production costs) by an average of 50% year-to-date.


It also expects potential improvements in operating efficiency post industry consolidation in West Malaysia.


The upward cycle in share prices of cement counters is probably no coincidence given the positive outlook on the industry. Investors just might cement good gains in such counters.
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