SCCC outlook stable, Fitch reports

Fitch has affirmed SCCC’s senior unsecured debentures at "A(tha)".

SCCC’s ratings reflect its leading position as the second-largest cement producer in Thailand, with strong brands in cement, ready-mix concrete and wood replacement products, the agency says. This has helped the company to maintain its domestic cement market share at about 27 per cent in the past 10 years.

One of its majority shareholders, Holcim ("BBB"/Stable), provides operational support and a strong global marketing network, helping to underpin SCCC’s exports.

SCCC has maintained financial leverage at low levels relative to peers, with net adjusted debt to Ebitdar (earnings before interest, tax, depreciation, amortisation, and rent) below 1.0 time from 2004 through 2011. Strong cash flow from operations is likely to keep net adjusted debt to Ebitdar below 2.0 over the medium term despite expected increasing capex and high dividend, Fitch said.

SCCC’s profitability is highly sensitive to energy prices, as fuel and transport costs account for about half of its total cash costs, it said. Excess cement capacity in the domestic market also constrains the company’s ability to pass on rising costs to customers, but its cost-saving measures such as increasing usage of alternative fuel, waste-heat generators and machine-efficiency improvement could partly ease the pressure from rising energy costs.

SCCC’s business profile is tempered by its earnings concentration within the domestic market, which accounted for more than 80 per cent of its total Ebitda last year, despite increasing exports to neighbouring countries. Excess domestic capacity also leads to price competition from time to time, constraining the company’s profitability.

Fitch says future developments that may, individually or collectively, lead to positive rating action include a significant increase in operating scale and geographical diversification, along with sustained low financial leverage and no material deterioration in its business profile.

Future developments that may, individually or collectively, lead to negative rating action include significant deterioration in credit metrics with net adjusted debt to Ebitdar higher than 2.0 and a sharp decline in operating profits for a prolonged period.