New powerhouse after Malayan Cement’s buy
KUCHING: Malayan Cement Bhd (Malayan Cement) has announced that they plan to acquire the entire equity interest of 10 companies and their respective subsidiaries which are involved in the cement and ready-mixed concrete businesses in Malaysia from YTL Cement Bhd (YTL Cement).
Post-exercise, analysts say Malayan Cement would command an estimated 60 to 65 per cent of cement production in Peninsular Malaysia.
The acquisition will be for a total consideration of RM5.16 billion which will be satisfied through RM2 billion in cash; RM1.41 billion through 375.5 million new shares issuance by Malayan Cement to YTL Cement; and RM1.75 billion through the issuance of 466.7 million new irredeemable convertible preference shares (ICPS).
Both the new shares and ICPS issuance will be issued at RM3.75, which was also the price per share that YTL Cement paid for the acquisition of its 76.98 per cent equity interest in Malayan Cement in 2019.
“We opine that this asset rationalisation exercise is a step further for Malayan Cement to achieve greater operational synergies which could improve the financial performance of the group moving forward,” commented researchers with MIDF Amanah Investment Bank Bhd (MIDF Research) yesterday.
“We expect this deal to further enhance operational synergies in achieving economies of scale through the consolidation of all cement and concrete businesses under Malayan Cement.
“We are positive on this deal as it could potentially bolster the group’s profitability through the acquisition of the profitable acquiree companies from YTL Cement.”
MIDF Research also remained sanguine on the huge improvement in the financial performance of the group for its first six months of its financial year 2021 (6MFY21) which showed the bottom-line to be on brink of the break-even level.
This was mainly achieved through the group’s initiative to embark on post-integration with YTL Cement.
“This has made significant progression as reflected in the lower cost of sales and operating costs. This led to the group’s 6MFY21 earnings before interest and tax to be in positive territory.
“As such, we opine that continuous effective cost synergies and the steady revenue growth trajectory will able to present an exciting earnings turnaround prospects for the group from FY21 onwards.”
Similarly, the team over at Hong Leong Investment Bank Bhd (HLIB Research) was long term positive on this deal given that it allows YTL to consolidate its cement and ready-mixed concrete operations under Malayan Cement.
Chief among the assets to be acquired are three integrated cement plants held under Pahang Cement, Perak-Hanjoong and Straits Cement.
“This, in our view would facilitate further extraction of synergies through rationalisation and streamlining of operations by removing cost duplication, enhancing economies of scale as well as aid strategy synchronisation,” it remarked.
“Additionally, we see minimal integration hiccups given similar business. Perhaps, a significant reduction in recurrent RPTs between YTL Cement and MCement would also pique market interest.”
Following the two corporate exercises, AmInvestment Bank Bhd (AmInvestment Bank) calculated that Malayan Cement’s net debt and gearing will increase from RM793 million and 0.35 times as at end-December 2020 to RM3.4 billion and 0.6 times respectively.
“We maintain our view that the worst is behind the cement sector in Peninsular Malaysia following the recent sector consolidation, resulting in more rational competition amongst players.
“However, the recovery will be gradual given the still weak outlook for its two main consuming industries — property and construction — weighed down further by the lingering pandemic.”