Siam Cement

Siam Cement Plc (SCC) 

The qoq improvement in 3Q12 core earnings reflects SCC’s superior product portfolio with
limited downside from petrochemicals and continued growth of non-petrochemical earnings.
It remains our top pick for earnings growth momentum and sustainability. At 51% of our
full-year forecast, 9M12 earnings were lower than expected due to lower associate income
and BSTE’s shutdown. Despite 16-29% EPS cuts for lower petrochemical spreads, we raise our
DCF-based target price to THB445 (WACC 8.2%) as we roll it forward to end-13. Maintain
Outperform. 

Weaker than expected

3Q12 core earnings of THB6.4bn were 8% short of consensus numbers and 15% behind our forecast.The culprits were associate income shortfall due to weak margins for PTA and BSTE’s shutdown. The main earnings contributor was the non-petrochemical business with THB4.2bn earnings, flat yoy but down 22% qoq on the back of weaker earnings from paper. From a THB1bn loss in 2Q12, the petrochemical business turned around to THB2.3bn core earnings as an inventory loss reversed to a gain of THB1bn.

Expansion plan

SCC has announced a THB23.2bn expansion plan for its cement and paper businesses. This is in line with its long-term plan to strengthen its foothold in ASEAN and be a leader by 2015. The investment will comprise 1) a greenfield 1.8mt cement plant in Java, 2) 0.9mt cement expansion in Cambodia, and 3) expansion of packaging paper capacity in Thailand.

Attractive play on domestic
growth and global recovery SCC, which is trading at 10x FY14 P/E or 0.5 s.d. below its historical average of 11x, should see a rerating from continued solid domestic earnings and a recovery of petrochemical margin from the current trough. Our DCF-based target price of THB445 is slightly higher than the SOP valuation of THB429, which we think is justified by its strong growth potential post 2014.