Siam Cement

Siam Cement Plc (SCC)

What's news? SCC, QPI Vietnam (a subsidiary of Qatar Petroleum International), PetroVietnam and Vinachem have together signed a joint-venture agreement to invest in Vietnam's first petrochemical complex worth US$4.5bn. The next step will be the finalization of the financing agreement, expected in mid-2012, then an investment decision in 2013. Commercial operations are tentatively slated to commence 4-5 years after groundbreaking.
The complex will comprise a 1.4m-tonne olefins cracker (with flexible use of Ethane, Propane and Naphtha as feedstocks) that will be fully-integrated into downstream processes (HDPE 400kt, PP 450kt, LLDPE 400kt) and PVC-related output. The facility will also include supporting infrastructure—storage facilities, a port, a jetty, a power plant and other utilities.
SCC's stake in the project has been reduced to 28% from 53% and TPC has become a new shareholder with an 18% interest. Tasweeq (the exclusive marketer of regulated products from Qatar) signed a long-term feedstock agreement to supply the cracker with Propane and Naphtha, while PV Gas (a subsidiary of PetroVietnam) signed an MOU to supply Ethane.
Comment: This development represents part of SCC’s plan to build an empire in the ASEAN region. Given large and fast-growing demand for petrochemical products in Vietnam, the complex should prove an excellent long-term growth generator for the firm. However, it is too early to factor the project into our model—the COD will be in 2018, at earliest, and there remains significant risk of delays.
Due to Vietnam’s weakening currency and high-inflation environment, financing is a problematic issue. As such, construction will be paid for with corporate financing rather than project financing. As such, SCC will have to inject equity of around US$1.26bn, or $2.07bn including the TPC portion of the project.
Action: We don’t think the news will impact SCC’s share price—it will be many years before the project contributes profits and the market has known about it for years. But we still think this is a good time to load up on SCC ahead of an earnings super-cycle kicking in. Our BUY rating stands; our YE12 target price is Bt430.
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