Siam Cement

Siam Cement Plc (SCC)

2Q13 net profit is B9.92bn, jumping 132%yoy
SCC announced 2Q13 net profit at B9.92bn, jumping 132%yoy, substantially
better than our projection. Every core business except paper could generate
remarkable profit, starting from cement and construction material that posted
a net profit of B3.4bn, increasing 16%yoy from the expansion of both local
and international construction sector. The profit growth was also contributed
by consolidation of its earnings with Prime Group’s, a big tile manufacturer in
Vietnam, for the first quarter, and a flood insurance claim of B400m. The
petrochemical business, at the same time, has benefited from a wider spread
between the main product price (PE/PP) and raw material cost (Naphtha) that
helped compensate for the stock loss. As a result, SCC could reverse to
generate a profit of B2.6bn from a net loss of B1bn in 2Q13. For the
investment business, the company had a dividend income of B2.5bn from the
auto business (mainly TOYOTA). The paper business was affected by lower
local consumption and fiercer competition from paper import, weakening the
profit by 6%yoy. 1H13 profit stood at B15.60/share. Interim dividend
payment has been announced at B5.50/share for 1H13, going XD on 9 August
2013.
- Profit to prosper in 3Q13 though some businesses enter low season
Quarter 3 is usually a low season of cement and construction material
business because of the rain, however, it is a high season of petrochemical
business from orders of plastics resin for goods manufacturing in quarter 4.
Spread of PE and PP prices compared with Naphtha has stayed at a high level,
while petrochemical price has stability, so the business would be able to make
better profit. Earnings of the paper business would weaken as a result of
greater competition and higher raw material cost, while there will not be
dividend income for the investment business in 3Q13. However, SCC would
book an extraordinary profit of B1.5bn in 3Q13 from a change of accounting
method for Siam Sanitary Ware and Siam Sanitary Fittings from cost to fair
value, which would enable SCC to keep the profit base of above B9bn.
- Up 2013 profit forecast by 23%. Reiterate BUY
Earnings in 1H13 were substantially better than projected, while the business
expansions locally and internationally have begun to generate notable returns.
Therefore, we revise up our profit forecast for 2013-2014 respectively by 23%
and 14%. SCC would have a net profit of B38,703m in 2013 and increase to
B44,222m in 2014. Fair value, using DCF, is B545/share, equivalent to PER of
16.9x, implying 19% upside from the current share price, with dividend yield
of around 3%. Reiterate BUY.