Highlights

• While bulk cement ASPs have modestly normalised from the Nov 25 price adjustments (<10%), HUME continues to demonstrate margin resilience.  
   
• The group remains well-equipped to manage cost headwinds, underpinned by: a) its disciplined coal procurement strategy, b) ongoing operational efficiency initiatives, and c) an agile manufacturing mix.
   
• HUME trades at an undemanding 7.5x FY27F PE (-1SD from industry mean), and offers attractive dividend yields of 5.4% and 5.7% over FY27-28. Maintain BUY with a target price of RM4.16.
   

Analysis

• Well-positioned to navigate elevated coal prices. The cement sector’s share prices have retraced by approximately 26% ytd, largely reflecting the sharp rise in Newcastle coal prices (+42% ytd) and Indonesian coal benchmark prices (+43% ytd). While coal typically represents a significant portion of Hume Cement Industries’ (HUME) COGS, the group remains well-equipped to manage cost headwinds, underpinned by: a) its disciplined coal procurement strategy; b) ongoing operational efficiency initiatives; and c) an agile manufacturing mix, prioritising production of high demand products.
   
• Solid coal procurement strategy. HUME's fuel cost resilience is underpinned by its advanced technology which enables utilisation of lower-grade coal without compromising product quality. The aforementioned coal generally trades at a discount to Newcastle benchmark coal, enabling the group to benefit from cost advantage. Coupled with HUME's strategy of accumulating coal inventories ahead of anticipated price increases, we believe the group is well positioned to cushion the impact of rising coal costs in the near term, particularly in 1QFY27. 
   
• Investing in structural cost efficiencies. HUME is currently integrating a waste heat recovery (WHR) system into its cement manufacturing operations, which is expected to generate electricity cost savings of approximately RM2m per month upon commissioning. The RM100m project is slated for completion in Sep 27 (1QFY28), and is expected to help mitigate the impact of current energy cost headwinds from elevated fuel prices. We believe the WHR initiative will further underpin HUME's margin expansion trajectory while enhancing its cost resilience, reinforcing its position as one of the sector's highest-margin players (FY28 net margin: 22%).