Thumbs up for SCG's Indonesian investment
Siam Cement Group (SCG), Thailand's largest industrial conglomerate, will benefit in the long term from the acquisition of Boral Indonesia, a leading ready-mix concrete maker, as it is another step towards strengthening SCG's business in Southeast Asia\
CIMB Securities said in its research that it had a positive view on SCG’s move into Indonesia as the company could penetrate the country more. The broker foresees four advantages from the acquisition. Firstly, SCG can access limestone reserves for its 20 million tonnes of production in Indonesia in the future. Secondly, SCG can strengthen its businesses in Indonesia, where it has 12 per cent of assets, after it acquired a 30-per-cent stake in Chandra Asri Petrochemical, the biggest petrochemical firm in Indonesia, last year. Thirdly, such an acquisition fits in with SCG’s strategy to market cement and building materials in the region.
Finally, SCG can export its excess supply of cement from Thailand to Indonesia, which is expected to account for 4 per cent of its cement sales volume per year.
The acquisition deal is worth US$135 million (Bt4.1 billion). Boral Indonesia has a production capacity of 2.2 million cubic metres per annum. The company has 40 plants located in Java and Sumatra. The deal is expected to be finalised in June this year, and SCG will realise revenue in the second half.
Bualuang Securities said that although the deal was quite expensive if seen only from the financial angle, it could be considered an A-grade deal as Boral provides good opportunity for market expansion in Indonesia. The cost per cubic metre of ready-mix concrete is $61.4 if compared with $15 of the new investment in such a concrete plant.
The broker said the location of limestone reserves was excellent for distributing the end product – cement – to more than 1,000 Indonesian islands. The reserves are expected to be enough for the annual capacity of 1 million tonnes for 80 years.
Kiatnakin Securities said the returns from Boral Indonesia would be informed after the deal is completed at the end of the second quarter. Regarding SCG’s performance, the broker expects to see good recovery in the second half of this year, thanks to the demand from China and Europe. Cement and paper are the key drivers for SCG during that period.
