Siam Cement

Siam Cement Plc (SCC) 

We expect SCC to report 4Q14 net profit of Bt7.4bn, -7% YoY and -5% QoQ with a 2H14F DPS of Bt7 on Jan 28. Excluding extra items, normalized profit is set to improve 4% QoQ from seasonal dividend income and 1% YoY off last year’s low base on the maintenance shutdown of its MOC. The low oil price is a positive for SCC for both its chemical (wider spread brought by faster fall in feedstock cost than in product prices) and non-chemical (lower fuel costs) units. We maintain BUY with SOTP PT of Bt520.  

4Q14 net profit estimated at Bt7.4bn, -7% YoY and -5% QoQ. Excluding non-recurring gain of Bt640mn in 4Q13 (mostly from the sale of investment) and Bt700mn in 3Q14 (mostly FX) discloses a normalized profit of Bt7.4bn, +1% YoY and +4% QoQ. The small growth YoY is off last year’s low base from the maintenance shutdown at its chemical unit and the rise QoQ from seasonal dividend income from Toyota Thailand. These offset seasonally lower earnings at its cement and building materials, chemical, and paper units. Earnings will be released on Jan 28. Following a 1H14 DPS of Bt5.5, we expect a 2H14 DPS of Bt7, based on dividend payout at 46% (vs. its target at 40-50%). 

4Q14F highlights. Cement and building materials unit (43% of 9M14 earnings): Without new projects, we expect local cement and building material sales volume to slip by 1-2% YoY (vs. -3% YoY in 3Q14) and 5% YoY (vs. -6% YoY in 3Q14), respectively. Product selling price is expected to be relatively stable. Chemical unit (35% of 9M14): We estimate inventory loss of Bt2.4bn in 4Q14 from the drop in chemical product prices in tandem with the fall in oil price and a 10-day inventory (vs. the usual 20-day inventory). Operations will be strong with wider spreads and solid volume. With a more rapid drop in feedstock costs than in product prices, PE/PP-naphtha spreads widened to US$797-814/ton (+35% YoY and +15% QoQ), amid relatively unchanged PVC-EDC/ethylene and associate spreads (BD/MMA-naphtha and PTA-PX). In 4Q14, polyolefins sales volume will be robust with a 100% utilization rate, some shipment delays from buyers from late 3Q14 (when prices began to drop) to 4Q14, and its low inventory level at yearend. Paper unit (11% of 9M14): We expect lower contribution on a planned maintenance shutdown and additional expenses from the startup of new packaging capacity in 4Q14. Other units (11% of 9M14): We expect higher earnings QoQ from seasonal dividend income from Toyota Thailand. 

Better 2015. In 2015, SCC expects local cement and building material demand to grow ~5%, led up by the return of private and public investment. For its chemical unit, SCC views that the favorable demand/supply picture through 2017 will continue to widen PE/PP-naphtha spread. The low oil price environment is positive for chemical spreads for naphtha-based producers like SCC in the near term and this may delay the startups of new supply in the longer term. This should also be a positive for its non-chemical unit by lowering fuel costs (i.e. coal and electricity costs). Note that in 2015, SCC will start to book contribution from its new investments, specifically 2.7mn tons (+11% of capacity) from new cement plants in Cambodia and Indonesia in 2Q15-3Q15 and its new packaging lines (+17% of capacity) will reach full utilization after startup in 4Q14.