Siam Cement

Siam Cement Plc (SCC)

3Q12 profit from operation projected at B5.87bn, or increased 37% QoQ
Although the spread of HDPE-naphtha and PP-naphtha products in 3Q12 has
declined from 2Q12, the rise of petrochemical product price is likely to boost
SCC to gain B1bn after the loss from inventory, driving the gross margin of
petrochemical business to normal once again. Nevertheless, the profit sharing
from subsidiaries remains low due to the spread of by-products (PTA and
MMA) that hasn’t improved. Moreover, there’re effects from BST factory that
has been shutdown because of the fire accident. For the cement and
construction materials business, it has grown compared with the prior year
due to the thriving of construction sector and cooperating with subsidiaries in
Indonesia and the Philippines about the financial statement. Meanwhile, the
paper business’s sales have grown well as it is about to enter high season but
the fire accident in Phoenix factory in the late of July made SCC lose its profit
by B200m in 3Q12. Overall, SCC’s sales in 3Q12 are projected to stand at
B104bn or an increase of 11% YoY. The profit from operation is projected at
B5.87bn or an increase of 37% QoQ (profit from flood insurance of B500m
not included, probably to be recognized in 3Q12 or 4Q12).

Investment plan of main business still marches constantly
SCC has still marched continuously to invest in the main business to enhance
the company’s growth. From the beginning of 2012 until present, there has
been an announcement of a plan to make further investment at B35bn which
is a recent purchase of Global stock (30% in proportion) with B10bn
investment budget. In the late of 2012, SCC might declare details about the
construction of the first cement factory in Indonesia (another investment
budget ofUS$300m). For the paper business, the company is projected to
focus on making M&A especially paper box factory because SCC currently has
more of paper production than paper box production capacity. For the
petrochemical business, the company will invest in increasing bottle neck and
building a downstream petrochemical factory for the subsidiary that is
Chandra Asri in Indonesia. In terms of Petrochemical Complex project in
Vietnam, there’s still has to be clearness from the financial constitution due
to concerns toward economy and stability of FX in Vietnam.


Reiterate “BUY” due to outstanding, potential growth in long term
Although SCC has faced so many negative factors in 2012 (economic
depression and the accident of the associated company) that 2012 profit has
slowed down by 9% YoY, the company’s earnings result is projected to grow
outstandingly once again in 2013 as a result of constant investment in the
past years. Fair value, using DCF, is B394 and B445 in 2013. We recommend
“BUY”.