Risks:
Business risk: The Business risk of LMCE is not stable as indicated by its unstable return rates in sales, similar to the returns of the KLSE construction index, and KLSE industrial index. But, during the dips in 2005 and 2008, the sales returns showed an opposite trend.
The volatility, measured by standard deviation of price index’ returns, of the above variables are:
KLSECON | LMCE SALES | INDUSTRY | Malaysia GDP | LMCE PI | |
Volatility | 36.2% | 6.8% | 19.7% | 2.7% | 53.5% |
Financial risk:
Total Assets/Equity (%) | Interest Cover (%)` | Net Cash Operating/ Total Debt (%) | |
2010 | 1.34 | 33.50 | 2.30 |
2009 | 1.34 | 26.48 | 1.93 |
2008 | 1.42 | 15.65 | 1.19 |
2007 | 1.46 | 21.13 | 0.78 |
2006 | 1.33 | 9.91 | 1.00 |
2005 | 1.40 | 2.11 | 0.31 |
2004 | 1.42 | 4.04 | 0.34 |
2003 | 1.46 | 9.69 | 0.51 |
2002 | 1.53 | 3.71 | 0.28 |
2001 | 1.48 | 2.02 | 0.34 |
The above financial ratios indicate that the financial risk of LMCE is low, given its ability to generate enough cash flow from operations to cover total debt (Net Cash Operating/ Total Debt),
a rising Interest coverage ratio and a stable Total assets/equity ratio. Limited accessibility to data hindered the comparison of the ratios with the sector as it would have helped to analyze whether LMCE’s financial ratios were above or below the sector’s financial risk.
Exchange rates risk: Only about 4% of the total turnover (Yr. 2010) is from its Singapore operations. The company claims that the lower revenue in 2009 and 2010 was mainly due to lower export prices which was aggravated by the weaker US dollar. Based on this, it may be said that the company may have a notable exposure to the exchange rate risk. (Need to scrutinize the Operating income more)
Liquidity risk: LMCE has a commendable market value of RM 5.9 billion (~ USD 1.8 billion) compared to its nearest competitor (YTL cement: RM 2.2 billion - ~ USD 705 million). Outstanding number of shares is 850 million compared to YTL’s 495 million. With fairly active trading of its stock, commendable institutional interest (40%), large number of stockholders and large relative market capitalization, LMCE has low liquidity risk and also would qualify as an investment for institutions that require firms with large market value.
