RHB Investment Bank Bhd (RHB Research) has maintained its OVERWEIGHT stance on the building materials sector, with Malayan Cement (LMC) $MCEMENT (3794.MY)$ as its top pick. The research house remains optimistic about the aluminium and cement sectors, which it believes are well-positioned to benefit from heightened US-China trade tensions and strong demand from green industries.

Aluminium is expected to see gains from increased global demand, while the cement sector remains supported by strong ties with construction and property markets. RHB Research highlights that LMC stands to benefit from the ongoing construction and property activities, especially with its dominance in West Malaysia, and potential expansion into East Malaysia, which could further boost its national market share.

In its third-quarter results for 2024 (Q324), Press Metal (PMAH) $PMETAL (8869.MY)$ exceeded expectations, while LMC's performance was in line with projections. PMAH reported a core profit of RM475.8 million, which represents a 7% decline from the previous quarter but a 49% year-on-year increase. The company's earnings growth was primarily driven by stronger contributions from its associates. Meanwhile, LMC experienced solid double-digit growth, with a 29.3% year-on-year increase in sales from aggregates and concrete. Higher selling prices helped offset weaker cement sales. Following the results, RHB Research raised PMAH's earnings forecasts for FY24F-26F by 14.4%, 12.2%, and 7.5%, respectively, after revising its assumptions on associate contributions, cost structures, and the USD/MYR exchange rate. LMC's forecasts, however, remain unchanged.

The research house is particularly positive on the aluminium sector, given the expected recovery in aluminium prices, bolstered by growing demand from green industries. RHB Research's economics team anticipates a 75 basis point cut in the US Federal Funds Rate in 2025, which could support an upward trend in aluminium prices. PMAH is expected to benefit from higher global aluminium prices, the removal of the 13% tax rebate on aluminium exports by China, and increased demand from non-Chinese manufacturers.

Alumina prices, which had remained high at US$695.40 per tonne in Q424, are a concern for PMAH, although the house expects a normalisation in 2025 with new projects in Indonesia and India starting operations in the first half of the year. Moreover, PMAH's stake in Bintan Alumina Indonesia, which acts as a natural hedge, is expected to help mitigate the impact of rising alumina costs.

RHB Research also sees stability in bulk cement prices, which have been sustained at RM380 per tonne since July 2023. This price stability is expected to persist, supported by the demand for key infrastructure projects, such as the Penang Light Rail Transit (LRT) and West Ipoh Span Expressway. With a range of infrastructure projects planned across the country, cement producers are expected to benefit significantly from these initiatives.

The research house notes that risks to this optimistic outlook include higher-than-expected raw material costs and a sharp deterioration in global economic conditions, which could dampen construction activity and reduce demand for aluminium and cement.

RHB's top pick, Malayan Cement, has a BUY rating with a target price of RM6.59.