Siam Cement

Siam Cement Plc (SCC)
 

What's news? SCC has reached an agreement to acquire 100% of Boral Indonesia (BI), a leading ready-mixed concrete (RMC) maker with a capacity of 2.2m cu.m (cubic meters) for a transaction value of Bt4.3bn ($135m). BI operates under the brand “Jayamix” and has 40 plants across Java and Sumatra and a 20% market share. It also owns other highly-valued assets, such as concrete pipe and precast concrete businesses, quarries and a limestone reserve. The deal is expected to be completed by the end of June 2012.
Comments: The deal may not appear cheap from a book keeping perspective. The acquisition PER is about 14x and the cost per cu.m is US$61.4, compared to a typical replacement cost for an RMC business of only $15/cu.m. But looking at the scope for business expansion, we rate the deal an A.
The limestone reserve is close to the coast, making it a great location for SCC to soon build its first Indonesian cement plant—it would be easy to ship product to the thousands of islands that make up Indonesia from there. The planned cement factory will have a capacity of 2m tonnes/year and the reserve contains enough limestone for it to operate for about 80 years.
Based on replacement cost, BI’s RMC business should be worth about US$33m. The implication is that the remaining $102m comprises limestone reserve value (assuming no value for concrete pipes, pre-cast concrete or quarries). A 2m-tonne cement plant would cost in the range of US$200-250m, so the total cost (cement plant and reserve) per tonne should be only $151-176m, which is much cheaper than the $300/tonne it would cost to buy an existing Indonesian cement plant.
Action: Not only will this acquisition enable SCC to build a cement plant (the most profitable business in the cement supply chain) sooner than would be possible in the absence of the deal, but there is scope for synergy-building with Kokoh, a building materials distributor that SCC purchased last year. Great value and great scope for future business growth and profits. We maintain our BUY rating with a YE12 target price of Bt430.