[RAM] RAM Ratings raises outlook on Malayan Cement to positive

RAM Ratings has revised from stable to positive the outlook on Malayan Cement Berhad’s (the Company) RM5.0 billion Sukuk Murabahah Programme (2022/2052) long-term and short-term issue ratings of AA3 and P1.

The positive outlook is supported by Malayan Cement’s dominant business position and improved financial performance following the strategic consolidation of YTL Cement Berhad’s (the Group) domestic cement and ready-mix concrete businesses under the Company. This reorganisation, coupled with a substantial boost in earnings due to strong cement demand and higher selling prices, solidified Malayan Cement’s dominant market position as the leading producer and retailer of cement in Peninsular Malaysia, with control over 65% of the region’s production capacity. 

The reorganisation enhanced operational efficiency through economies of scale and centralised functions, supporting superior margins and a favourable credit metrics performance. We project the Company’s funds from operations debt coverage (FFODC) to remain healthy at above 0.15 times.

Due to these factors, Malayan Cement demonstrated remarkable improvement in revenue generation and profitability in FY June 2023, seeing its revenue and operating profit before depreciation, interest and tax (OPBDIT) reach RM3.8 bil and RM595.3 mil, respectively (FY June 2022:  RM2.7 bil and RM397.5 mil). Pre-tax profit nearly doubled from RM129.2 mil in the preceding year to RM253.1 mil. Despite elevated production costs, Malayan Cement achieved better operating margins than the year before. While cement exports contribute moderately to revenue, Malayan Cement and the broader YTL Cement maintain a sustainable edge over competitors in logistics costs. 

The Company’s balance sheet strengthened over the review period, with total debt declining to RM3.4 bil in 1Q FY June 2024 and gearing correspondingly moderating to 0.56 times (FY June 2023: RM3.8 bil and 0.64 times), translating to a stronger financial position. Malayan Cement’s FFODC was 0.16 times in fiscal 2023, increasing further to 0.30 times in 1Q fiscal 2024. As input costs and logistics expenses ease, we expect cement selling prices to stabilise in the near to medium term, backed by strong demand from growing construction activities. This is likely to absorb industry capacity, allowing Malayan Cement to demonstrate a more sustainable cashflow performance, build liquidity and gradually reduce its debt load over time. We will monitor the Company’s performance over the next year and consider an upgrade if these metrics can be broadly maintained at current levels.

Under RAM’s methodology for assessing parent-subsidiary relationships, Malayan Cement is viewed to have a close relationship with its ultimate parent, YTL Corporation Berhad (YTL Corp). This view is underpinned by the integration of the Company’s operations and its significant contribution to YTL Cement’s revenue and profits. YTL Cement, in turn, constitutes almost the entirety of YTL Corp’s Cement and Building Materials Industry segment, the second largest after the Utilities segment. Given YTL Corp’s control over the strategic direction of the entire cement business, the issue rating benefits from an uplift from parental support. 


Analytical contacts
Zachary Tan
(603) 3385 2612
zachary@ram.com.my

Thong Mun Wai
(603) 3385 2522
munwai@ram.com.my

Media contact
Sakinah Arifin
(603) 3385 2500
sakinah@ram.com.my