Siam Cement

Siam Cement Plc (SCC)   

 

4Q14 net profit Bt8.9bn (Bt7.4/share), +11% YoY and +13% QoQ. This was 20% above SCBS and consensus, largely from a better chemical unit, backed by: 1) wider PE/PP-naphtha spread at US$810/ton (+36% YoY and +15% QoQ) from a faster fall in naphtha cost than in product prices; 2) higher naphtha cracker efficiency (energy cost savings) from cheaper feedstock cost; 3) strong PP/PE sales volume (+27% YoY after last year’s shutdown of MOC and +6% QoQ from buyer delays in shipments from late 3Q14). These positives outdid the unit’s inventory loss of Bt3bn. Earnings from SCC’s other units were quite in line, including cement and building materials (weak demand and higher depreciation expenses from the startup of new efficiency improvement projects), paper (maintenance shutdown), and others (slight rise YoY in dividend and equity income from its auto and agricultural companies). Of its 2014 earnings, 39% came from cement and building materials, 36% from chemicals, 10% from paper, and 15% from others. SCC also announced a 2H14 DPS of Bt7, XD on March 31.  

 

Company guidance  

 

- Chemical unit: SCC views that the favorable demand/supply picture through 2017 will continue to widen PE/PP-naphtha spread. SCC expects more improvement in the PVC chain from: 1) wider PVC-EDC/ethylene spread thanks to the dip in EDC/ethylene costs and less pressure from acetylene-base PVC supply from the low oil price; 2) easing VCM shortage via a planned debottlenecking that will raise capacity by 90K tons in 1Q15. In terms of sales volume, SCC expects more restocking demand in the near term since inventories at buyers are currently low.  

 

- Cement and building materials: In 2015, SCC expects local cement demand to grow by 6% from -1% in 2014, led up by the return of private and public investment, with recovery in local building material demand lagging that for cement.  

 

- Low oil price: This is positive for chemical spreads and production efficiency for naphtha-based producers like SCC and may delay the startups of new supply beyond the end of 2017. This should also be a positive for its non-chemical unit by lowering fuel costs i.e. coal and electricity, for cement and paper units and natural gas cost for its ceramic tiles unit.  

 

- Investments: In 2015, SCC will start to book contribution from new investments, specifically 2.7mn tons (+11% of capacity) of cement from the new plants in Cambodia and Indonesia added in 2Q15-3Q15 and the steady ramp up of its new packaging lines (+17% of capacity) to reach full utilization after startup in 4Q14.