Siam Cement

Siam Cement Plc (SCC)

1Q13F net profit of Bt7.3bn. We estimate SCC’s 1Q13F net profit at Bt7.3bn, +22% YoY and +6% QoQ. Backing the improvement is a better contribution from all business units plus the full resumption of operations at BST (explosion in May 2012) and Phoenix (fire in July 2012) plants. Its results will be released on April 24.
1Q13F details by business unit. 
- Chemical unit: Backed by high season and buying interest in the market, we expect stronger sales volume and wider chemical spreads in 1Q13: HDPE-naphtha at US$519 (+38% YoY and +16% QoQ) and PP-naphtha at US$579 (+42% YoY and +12% QoQ). While earnings from associates will be low from continued low PTA-PX and MMA-naphtha spread, BST will make a better showing since it returned to full utilization in 1Q13 vs. 75-80% in 4Q12 after the May 2012 explosion. 
- Paper unit: Earnings will be firmed up by solid sales volume and stable paper price and cost gap, the absence of the Bt400mn in maintenance expenses recorded in 4Q12, and the full resumption of the Phoenix plant after the fire in July 2012. 
- Cement and building materials units: We expect stronger contribution, backed by local cement sales volume growth at 15% YoY and building material sales volume growth at above 10% YoY, with prices relatively unchanged. 
- Distribution unit: Earnings will be boosted by a full quarter of earnings from Global (30% stake) after the mid-4Q12 finalization of the purchase.
2Q13F earnings to rise. In stark contrast to the QoQ earnings drop pure construction materials players will see on seasonality, SCC’s 2Q13F net profit will continue to rise. Backing this is the seasonal dividend income (mainly from Toyota) that will overcome the seasonally weaker sales volume. On a YoY basis, earnings will improve from stronger contribution from all business units, low base for BST earnings (explosion in May 2012) together with better contribution from recent acquisitions. We note it has a record of business turnaround within 1-2 years on its new investments into going concerns.
Maintain BUY with SOTP PT of Bt525. We like SCC for 1) expected 1Q13F earnings improvement from seasonality and better utilization rates at BST and Phoenix plants; 2) stronger 2Q13F earnings (vs. seasonal drop QoQ for other players), 3) high LT earnings growth with 3-year EPS growth of 25% backed by higher volume at the non-chemical units, revived spread at the chemical unit and inorganic growth from its new investments in ASEAN.