The Siam Cement

The Siam Cement Plc (SCC)

- 3Q13 net profit posted at B9.8bn, down 1%qoq
SCC reported 3Q13 net profit at B9.8bn, down 1%qoq, slightly better than we
expected. Cement and construction material business was still the major profit
generator of the company, with the total profit of B5,368m, growing 58%qoq and
making up 54% of the total profit. The remarkable profit growth came partially
from combined extraordinary profit of B1,701m from investment valuation
adjustment and profit from investment sale. At the same time, profit from the
petrochemical business grew 44%qoq, also beating our projection thanks to a
profit of B800m from inventory valuation adjustment that made the gross margin
higher than we projected. Profit from the paper business, on the other hand,
dropped 23%qoq as a result of fierce competition in the market and increasing
raw material cost. The investment business reversed to face the first net loss in
seven years at B93m as its share of profits from investments for using the equity
method has fallen substantially. Overall, 9M13 net profit was B28,513m, leaping
71%yoy. The company announced an extra interim dividend at B3/share as a
celebration for its 100th anniversary, going XD on 11 November 2013.
- 4Q13 profit to decelerate due to 45-day MOC maintenance shutdown
A maintenance shutdown of a MOC factory with ethylene production capacity of
900,000 tons per year and a shutdown of a downstream petrochemical factory
that receives raw material from the MOC for 45 days in mid November would
make earnings from the petrochemical business in 4Q13, which is usually a low
season, sink significantly from 3Q13. Meanwhile, the cement and construction
material business has been impacted by the recent flood in eastern and lower
northeastern Thailand that made cement sales in the first three weeks of October
drop 3%yoy. Although the sales are projected to revive again in November, it
would not be able to support 4Q13 profit to be as good as 3Q13. The paper
business also has to face pressure in terms of raw material and fierce competition.
Nevertheless, the investment business usually get considerable dividend income
the fourth quarter of every year, so it would help prevent 4Q13 earnings from a
severe fall. 4Q13 profit is estimated preliminarily at B8-9bn.
- Strong growth for core business. Profit to enter uptrend in next three years. Buy
An aggressive business plan to generate growth in ASEAN via continuous
investment expansion over the past five years would make SCC’s profit grow
continuously in the next three years, driven mainly by the petrochemical business
that is entering an uptrend again next year. We estimate 2014-2016 average
profit growth at 15% per year. 2014 fair value, DCF, is B558 or PER of 15.5x. The
current share price has 29% upside. Dividend yield is expected around 3-4%.
Buy.