Siam Cement (SCC)

Siam Cement Plc (SCC)

Q2 2012’s norm profit equates B4.28bn, down 43%yoy

SCC posted 2Q12’s earnings result with a net profit and norm profit of
B4,280m, down 43%yoy and close to our projection. The plunge in earnings
has resulted from recognition of inventory loss of B2bn from petrochemical
business and the fire accident at BST plant which had an impact on profit
sharing to SCC as well as supply chain of petrochemical business of SCC by
B600m. Consequently, in 2Q12 the petrochemical business faced a net loss of
B1,005m, compared with an average net profit of B3bn/quarter during
normal situation. On the other hand, construction related businesses could
still generate robust earnings, including cement with a profit growth of
4%yoy and construction material with a profit growth of 28%yoy. The paper
business has benefited from increasing regional sales from the operation in
Vietnam as well as rising domestic demands for consumption goods.
Accordingly, profit from this business has grown by 9%yoy. For investment
business, there was recognition of dividend income from Toyota by B1.2bn.
Overall, in 1H12 SCC could make a profit of B10.3bn or EPS of B8.54/share.
Interim dividend is announced at B4.50/share, going XD on 6 August 2012.

Q3 2012’s profit to recover aggressively, thanks to normalisation of petrochemical business

We project to see a significant recovery of earnings in 3Q12, especially for
petrochemical business which would book a reversal of some of the stock loss
after prices of petrochemical products have rebounded following crude oil
price. Meanwhile, the effect from the closure of BST plant after the fire
accident has decreased because the company had solved the problem by
adjusting internal production process and installing a pipeline for direct Mixed
C-4 transmit. Although the cement and construction material businesses have
decelerated on seasonal effect, it would still grow from 3Q11 due to thriving
construction industry and the company’s consolidation of financial statements
with subsidiaries in Indonesia and the Philippines. Moreover, SCC still has a
chance to recognize extraordinary profit from the insurance claims for the
flood damage at B500m, which was yet concluded in 2Q12. Consequently, we
estimate SCC’s profit in 3Q12 at no lower than B6.5bn.

Cut profit forecast by 15% but recommend “buy” from strong fundamental in long run
Due to aggressively falling profit in 2Q12, we revise down our
profit forecast by 15% for 2012 and 8% for 2013 because the
entering into an uptrend of petrochemical business might take a
longer time. Accordingly, new fair value, using DCF, decreases
from B415 to B394, but still implies 25% upside from the
current share price. The company still has strong fundamental
attributes and promising growth potential from its offensive
business expansion through other business acquisitions.
Reiterate BUY.