Siam Cement

Siam Cement Plc (SCC)

Investment thesis
At the post-results meeting yesterday, management expressed bullishness over the company’s outlook. All SCC’s businesses are on up-cycles and are ready to generate robust growth for the next several years. With a three-year earnings CAGR of 26%, we think the current PERs of 18.1x for FY13 and 14.4x for FY14 still present a good entry price. We reaffirm our BUY call on SCC with a YE13 target price of Bt520.
Q1 2013 review and Q2 2013 outlook
SCC reported a 1Q13 net profit of Bt8.8bn, up by 47% YoY and 25% QoQ. The result beat our estimate by 19% and the street by 11%, due to higher-than-expected equity income (from chemicals associates and Kubota) and an FX gain of Bt1bn. All its core businesses posted both YoY and QoQ earnings growth, broadly in line with our expectations. We expect strong profit growth to continue through 2Q13. Huge dividend income from Toyota should offset the impact of seasonally soft chemical spreads and lower QoQ demand for cement and building materials.
Chemicals on an improving trend
The Chemicals unit posted a strong recovery in 1Q13—EBITDA of Bt3.2bn, up by 262% YoY and 77% QoQ, led by fatter spreads and greater sales volumes. Although spreads will decline in 2Q13, due to seasonality, they are likely to hold stronger than we and the street earlier expected. The only hiccup for the Chemicals business is the slated 45-day shutdown of the MOC plant in 4Q13. But its impact should be eased by building a stockpile ahead the shutdown, which could supply downstream units for 3-4 weeks. For the remaining weeks, the downstream units will be fed by imported polyolefins, if spot prices are low enough to them to make profits.
Cement and Building Materials to outperform other businesses
Domestic cement demand grew 10% YoY, but the cement price failed to increase, due to competition. However, SCC believes the price will gradually rise during the rest of the year. For Building Materials, both volume and prices should continue increasing, driven by growing demand across ASEAN markets, acquisitions and new products to be launched at higher prices. Note that effective 1Q13, SCC started grouping its Cement, Building Materials and Logistics units as one business. Total EBITDA from this group was Bt6.6bn, up by 4% YoY and 32% QoQ.
Paper growth from a low base
Paper EBITDA was Bt2.8bn, up by 26% YoY and 40% QoQ. The YoY rise was due to the low base set by fallout from the 4Q11 flooding, while the QoQ improvement was tied to the full operational resumption of a fire-affected pulp line at PPPC. The paper price outlook is stable in the short- to medium-term, while sales volume should gradually rise, driven by a strong ASEAN economy. Going forward, the packaging chain should be a major driver, both in terms of volume and margin, as it has more applications and is more sensitive to the economic climate than the writing paper chain.