YTL Cement target price to RM7.00

Better days ahead: In conjunction with the recent proposal to implement theAutomated Pricing Mechanism (APM) to regulate steel prices in the future, anannouncement was made on Bloomberg that the APM will be introduced to determinecement prices from CY08 onwards, and that the existing blended ceiling price ofM$220/t will be scrapped.APM = intervention method: We believe the implementation of the APM, coupledwith the removal of the price ceiling, will not result in a short-term "spike"in cement prices. If anything, all it means is that cement prices will becomemore dynamic, will be revised regularly, and there will be only one universalspot pricein the market. This is fundamentally different from the existing dynamicswhereby cement prices are determined by supply-demand economics, albeit with aprice ceiling.We raise our price forecast: Nevertheless, we are factoring in a rise in spotprices by an average of M$10/t in FY08 and M$5/t in FY09 and FY10, primarilyfueled by strong momentum in the sector as demand picks up.We raise our PT by 18.6% to M$7.00: We reiterate our Overweight rating on YTLCement and introduce a June-08 PT of M$7.00, computed based on EV of M$171/tratio. Based on our revised assumptions, we are pegging a higher EV of US$171/tto YTL Cement to primarily reflect the margin expansion from higher sellingprice. We also increase our earnings estimates for FY08 and FY09 by 13% and 11%to M$0.45 and M$0.60, respectively. We highlight both excess capacity and aprice war as key risks to our price target.