Siam Cement

Siam Cement Plc (SCC)

What’s new
We accompanied SCC’s CFO, Chaovalit Ekabut, to meet local institutional investors. The meetings mainly covered the outlook for each business unit and the firm’s strategies to expand over the long-term. In our view, business expansion and supply chain integration throughout ASEAN should transform SCC into one of the strongest growth companies over the long-term. We believe now is a good time to take or increase positions on the stock, as its long-term growth profile is robust, while the current valuation (PERs of 17x for FY13 and 13.8x for FY14) is attractive.
Bullish on Cement and Building Materials
Management is positive on the growth potential of Cement and Building Materials in ASEAN. The driver is volume. Domestic cement demand should grow 10% this year (without taking water resource management projects into account). Cement demand growth in Indonesia and Myanmar should be even stronger. SCC plans to expand cement capacity by 19% by 2016. The second cement line in Cambodia with a capacity of 0.9m tonne is expected to be completed in 2015, while new 1.8mt cement plants in Indonesia and Myanmar should start running in 2015 and 2016, respectively. Moreover, SCC is looking to buy a cement plant in Vietnam if it can get a good price as a result of oversupply in that market.
The integration of Cement, Building Materials and Distribution should build synergies, increase competitiveness, increase the value of products and services and speed up business growth in ASEAN. SCC can provide customers with total solutions for construction, which, over the long run, should enhance return and create brand loyalty.
Improving Chemicals performance
Management expects chemical spreads to gradually improve; the cycle should peak in 2016-17 (at which time new gas-based crackers are expected to start running in the US). Growth during the next 3-4 years will be driven by margin expansion. Additions to equity capacity will be modest—only debottlenecking at Chandra Asri (SCC has a 30% stake), which will increase olefins capacity by 200k tonnes to 800kt. The planned chemical complex in Vietnam with an olefins capacity of 1.4mt has been shelved for the moment, due to financing difficulties.
Paper transforming into a turbo engine
After delivering subdued growth for the past three years, the Paper business is re-entering growth mode, led by sales and margin expansion. The firm plans to expand its upstream packaging paper sheet capacity by 21% to 2.28mt in 2014, while downstream integration with the acquisition of box-making plants should enhance margin. With regard to the Fibrous chain, the business transformation from sunset printing and writing (P&W) paper production to non-P&W products (such as Dissolving Grade Pulp), should boost sales and margin, given that price of P&W pulp is only around US$600/t while that of Dissolving Grade Pulp is $900-1,000/t.