Siam Cement

The Siam Cement Plc (SCC)
2Q13 net profit projected at B8.37bn, leaping 96% yoy
Though 2Q is a low season for SCC's many businesses, growth in domestic
construction sector, especially in upcountry, has boosted 2Q13 cement
usage by over 10% yoy, increasing cement price by B100/ton, likely to
make cement and construction material business the largest profit makers
for SCC. Petrochemical business is likely to make more profit than projected
due to high demand in Asia, raising spread between main products, HDPE
and PP, and naphtha, to US$585/ton and US$617/ton, respectively.
However, as petrochemical product prices have fallen along with crude oil
price, SCC would face stock loss at B700m. Moreover, weakened baht would
make SCC suffer from Fx loss for debt in dollar, which is mostly in
petrochemical business, so SCC needs to pay B400-500bn more interest
expense. For paper business, profit base is projected to decrease to normal
at B1bn due to rising raw material cost. B1.5-2bn dividend yield is projected
for investment business (mostly from TOYOTA). Overall, SSC's 2Q13 net
profit is predicted at B8.37bn, rising 96% yoy.
- Main business likely to be blissful, ready to invest continuously in ASEAN
Focus on infrastructure development in ASEAN countries has still been
significant supporting factor for growth of SCC, which has continuously been
investing in the region. From the beginning of 2011 to present, SCC has
declared investment projects at the total of B91.2bn. All are from main
businesses i.e. construction materials, paper and petrochemical. Investment
distribution in these businesses would decrease fluctuation in future
earnings. From many previous years, SCC's 50% profit proportion has come
from petrochemical business. In next 5 years, SCC is projected to spend
investment budget at least B40-50bn per year through mergers and
acquisitions (M&A) and new factories constructions. Aside from expanding
income base, SCC has also focused on increasing sales of high value assets
(HVA), aiming to raise profit proportion from HVA to 50% of total income
within 2015 from 34% at present.
- Stock price falls that upside becomes interesting, upgrade from "HOLD" to "BUY"
Businesses have been likely to grow well along with extending ASEAN
economy. In FY2013, SCC is predicted to have an outstanding profit, as well
as great 2014 profit growth rate. We evaluate SCC's FV, based on DCF
method, at suitable price of B470. As stock price has weakened along with
SET's overview, it has 12% upside, as well as yearly dividend yield of 3-4%.
Thus, we upgrade from "HOLD" to "BUY".