This article first appeared in The Edge Malaysia Weekly on March 25, 2024 - March 31, 2024

UEM Group Bhd is understood to have called off a tender for the sale of its wholly-owned Cement Industries of Malaysia Bhd (CIMA). The U-turn comes on the back of a turnaround in losses and increasing profits at the cement producer.

It is understood that the six parties shortlisted to buy CIMA — German outfit Heidelberg Materials AG, China’s Huaxin Cement Co Ltd, Malaysian Resources Corp Bhd (MRCB), a company connected to Yinson Holdings Bhd and companies linked to the Pahang and Negeri Sembilan royal families — have been notified by UEM Group.

In an emailed response to questions from The Edge, a representative of UEM Group says, “CIMA will remain a subsidiary of UEM Group. CIMA has successfully implemented its transformation plan that resulted in the company improving its market presence, operational efficiency and financials where after five years of losses, it had for FY2022 posted a profit after tax of RM7.11 million on the back of RM1.07 billion in revenue.

“CIMA’s FY2023 financial results [are] even better — it recorded RM152.1 million in profit after tax and RM1.52 billion in revenue, with increment of more than 100% and 33% respectively compared with the previous year.

“Moving forward and as a shareholder, UEM Group will continue to support CIMA’s turnaround plans, which include implementation of various innovation and sustainability initiatives, and at the same time continue to explore opportunities to strengthen CIMA’s market position, financial health and technical capabilities,” the UEM Group representative says.

The Edge had asked if UEM Group had called off the tender and if it was true that it was in talks with another party to sell a stake in CIMA.

A source familiar with UEM Group, meanwhile, says the tender was called off largely because the shortlisted buyers did not meet UEM Group’s criteria. “None of the shortlisted bidders ticked all the boxes, so perhaps UEM Group thought it would be better to hang on to the asset … it is after all doing well,” the source observes.

While details are scarce, there is now speculation that UEM Group is looking to sell a 20% to 30% stake in CIMA to an interested party, as opposed to flogging off the entire company.

Judging by UEM Group’s reply, there seems to be a possibility of a stake sale of between 20% and 30%, which would enable CIMA to remain a bumiputera entity, in terms of shareholding at least.

According to market talk, the two foreign bidders — Heidelberg Materials and Huaxin Cement — could be interested in buying into CIMA and running it for UEM Group.

The Edge understands that the two companies were the highest bidders for CIMA among the shortlisted candidates.

Heidelberg Materials, one of the world’s largest building materials companies, is listed on the German DAX. It has a market capitalisation of US$19 billion (RM90 billion).

Huaxin Cement is about a third controlled by Holchin BV, a unit of Holcim Ltd (formerly known as LafargeHolcim) — a Swiss giant multinational corporation that specialises in cement and related products.

CIMA’s profit after tax of RM152.1 million on RM1.52 billion in revenue appears to be a turnaround given that it had suffered after-tax losses since 2018, if not earlier.

One of the bidders, however, questions how CIMA managed to make a profit just when UEM Group was looking to hive it off.

The initial price tag for CIMA was about RM1 billion, but with the recent profit, UEM Group may have thought that the company was worth more. Bursa Malaysia-listed Malayan Cement Bhd, for instance, is trading at an earnings multiple of 18 times but privately owned CIMA’s would be less than seven times based on a price tag of RM1 billion and after-tax profit of RM152 million.

It is also worth noting that an expected rebound in construction and property activities, with a number of infrastructure projects being touted, could result in building materials players such as CIMA reaping significant benefits.

While CIMA’s latest financials have yet to be filed with the Companies Commission of Malaysia (SSM), as at end-2022, it had total assets of RM1.53 billion against RM778.14 million in total liabilities while its retained earnings stood at RM379.82 million. The company’s main asset is Negeri Sembilan Cement Industries Sdn Bhd.

CIMA commenced operations in the early 1970s as a cement producer but was grinding imported clinker. In 1975, it went public and began production of its own clinker from a new integrated mill. United Engineers (Malaysia), the precursor to UEM Group, replaced the Perlis State Economic Development Corp as the majority shareholder of CIMA in 1989. Over the years, however, CIMA has been overtaken by other players in size.

YTL Cement Bhd, a 98% unit of conglomerate YTL Corp Bhd, controls 78.58% of publicly traded Malayan Cement (formerly LaFarge Malaysia Bhd). The other sizeable players are Bursa-listed Hume Cement Industries Bhd and Tasek Corp Bhd. Hume is controlled by billionaire businessman Tan Sri Quek Leng Chan of the Hong Leong group, while Tasek is wholly-owned by Singapore-listed Hong Leong Asia Ltd. 

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