Clad that

1Q24 RESULT

Need To Know

• 1Q24 net profit US$175m +13% on pcp and well ahead of guidance US$145-165m and consensus US$150m.
• Margins above 30% (Asia and North America) and likely to stay there, in our view.
• 2Q24 net profit guidance US$170-190m will lead to consensus upgrades.

Investment Implications

In a soft but gradually improving North American housing market, James Hardie produced its best ever first quarter result on lower sales, but better margins. Although the outlook for US housing in FY24 remains uncertain, JHX is perfectly set with the right products and a strong customer focus. The market is now chasing the upgraded earnings guidance. We retain our Buy recommendation.

1Q24 result. Weak global housing markets caused an 11% fall in volumes and hence a 5% decline in net sales for JHX. A modest increase in pricing together with lower freight costs enabled gross margins to increase and consequently EBIT margin as well. The NAFC and APFC divisions reported EBIT margins of 31.3% and 33.2% respectively with EBP margin almost reaching 10%.

Operating cashflow increased to US$252m and net debt declined by US$105m to US$841m representing leverage of 0.85x.

FY24 outlook. The US addressable market is still expected to be down by 5-18% in CY23, but such is JHX’s confidence it has issued guidance for 1Q24 that shows NAFC volume increasing to 740-770 msf (million standard feet), comfortably ahead of consensus at 726 msf. In turn, JHX is guiding NAFC EBIT margin to 30-32%.

Group 1Q24 net profit guidance is now set at US$170-190m and while this is seasonally lower than usual, it is still commendable considering the macro environment.

Recent data suggests the US housing market is slowly recovering. New construction expectations have significantly improved while multi-unit and repair & remodelling activity is modestly better.

JHX reaffirmed its capex target of US$550m in FY24 to increase capacity and target market share gains.

Investment View

This result and 1Q24 guidance was well ahead of what the market had anticipated. We expect consensus earnings forecasts will be substantially upgraded as JHX lifts EBIT margins and boosts capacity in a recovering housing market. JHX has a strong position in exterior and interior claddings and has worked to improve its relationships with home builders. The company has also improved its operational flexibility.

We retain our Buy recommendation.