SCG consolidates for higher regional strength

Siam Cement Group is consolidating its cement and building-materials businesses – the two fastest-growing – to strengthen its competitiveness for further regional expansion. 

“There is strong synergy among the cement, building materials and distribution businesses, which are related to the construction industry,” Kan Trakulhoon, president and chief executive officer of the industrial conglomerate, said in a filing to the Stock Exchange of Thailand on Wednesday.

With the aim to increase Asean sales from 18 per cent of the total, the group has budgeted Bt40 billion to Bt50 billion for further regional expansion via mergers and acquisitions. Besides a petrochemical complex in Vietnam, much of the investment could be slated for a floor-tile plant in Vietnam and cement plants in Cambodia, Indonesia and Myanmar. 

“This business restructuring aims to strengthen operating excellence further, as well as to accelerate the development of products and services to serve customers, and to improve technological advancement,” Kan said.

“Furthermore, as SCG expands its operations across the Asean region, this business restructuring will enhance the overall competitiveness over the longer term.” 

The board of directors on Wednesday approved the organisation-restructuring plan. It will create a single market-facing entity and will be referred to as SCG Cement-Building Materials. The two other core businesses – paper and chemicals – remain unchanged.

The new business unit will have Kajohndet Sangsuban as the president and vice president for the domestic market, Pichit Maipoom as vice president for operations and Aree Chavalitcheewingul as vice president for regional business. Last year, these three businesses accounted for 36 per cent of total consolidated sales and about half of profit.

Brokerages that recommend the stock are convinced that cement and building materials will help boost the group’s profit this year. Against 12-per-cent growth in domestic cement demand, SCG expects 7-8 per-cent growth this year, driven by a surge in residential, commercial and infrastructure construction. The cement price increased to Bt1,825 per tonne in the fourth quarter of 2012 and should rise a little further this year, pushed up by demand. According to Bualuang Securities, the business’ EBITDA (earnings before interest, taxes, depreciation and amortisation) margin is expected to expand, thanks to a higher price, lower coal cost and more domestic sales in the revenue mix. 

The boom in provincial housing, particularly detached houses, and new investments in Asean should sustain strong sales growth. SCG’s acquisition of Prime Group in Vietnam will boost the group’s ceramic capacity by 50 per cent when it is completed this quarter. 

“The cement and building-materials businesses should continue to perform well on the back of strong growth in the housing market and the rise in housing construction. Transfers at housing firms under our coverage are likely to rise by 15-20 per cent. Cement demand is projected to grow by 5-10 per cent,” said Phillip Securities (Thailand).

The research notes were released before the Housing Finance Association proposed for the government to raise the legal down payment to 30 per cent to stem speculation in the detached-housing and condominium segments. Asia Plus Securities is convinced that the higher down payment would pressure demand particularly in condos, as 20 per cent of condo buyers already have a first home.

 

 

Most profitable units 

_ The three units generated half of the group’s consolidated profit in 2012. 

business revenue (Bt bn) profit (Bt bn)

cement 67.56 9.16

building materials 41.34 2.95

distribution 126.69 1.035

Source: Siam Cement Group