Siam Cement

Siam Cement Plc 

 

2Q15F net profit is expected to be an outstanding Bt10.8bn, +27% YoY (flat QoQ), thanks to a robust chemical unit and seasonal dividend income, with a 1H15F DPS of Bt7. SCC continues to top our list with:  1) good earnings; 2) blessings from low oil price and weak baht; 3) solid three-year earnings growth of 16%. Maintain BUY with end-2015 SOTP PT of Bt600.  

 

2Q15F net profit of Bt10.8bn, +27% YoY and flat QoQ. Excluding the Bt1.6bn extra gain in 1Q15 from the divestment of Michelin (Thailand) gives a normalized 2Q15F profit of Bt10.8bn, +27% YoY and +13% QoQ. Leading the improvement is a stronger chemical unit, with wider spreads and inventory gain, and seasonal dividend income. We expect a 1H15 DPS of Bt7. Results and dividend will be announced on July 29. 

 

2Q15F highlights. Chemical unit (44% of 1Q15 earnings): Of all units, this will show the most improvement, with wider spreads and inventory gain. We estimate inventory gain of ~Bt700mn in 2Q15 (after a loss of Bt80mn in 2Q14 and Bt930mn in 1Q15), from a slight rise in product prices concurrent with lower oil price. PE/PP chain operations will be robust, with wider PE/PP-naphtha spread of US$787-814/ton (+28% YoY and +18% QoQ). Contribution from PVC and associates will be relatively unchanged. Cement and building materials unit (32% of 1Q15): We expect stable earnings YoY but a drop QoQ from seasonally lower volume. Local cement sales volume is estimated to rise 1% YoY (vs. 0% in 2Q14 and -2% in 1Q15). A slight drop in the volume of housing product sales (roofing tiles and fiber cement products) will be partly offset by a rise in ceramic tile exports. Margin will stay healthy, thanks to lower costs for fuel (coal, power and natural gas) and transportation (diesel) amid stable product selling prices. Paper unit (8% of 1Q15): We expect slight earnings improvement from the ramp up of its new packaging capacity (+17% of capacity) to full utilization after startup in late 4Q14. Other units (16% of 1Q15): higher QoQ from seasonal dividend from Toyota (Thailand). 

 

Low oil price and weak baht are bonuses. As a naphtha-based player, the low oil price is positive for chemical spreads and cracker efficiency and delaying the startups of new chemical supply. It also cuts fuel and transportation costs. As a net exporter, each one-baht fall to the US$ boosts earnings Bt1bn (+2.5%). 

 

Firm outlook ahead. With new supply of shale gas or CTO delayed or cancelled, SCC believes it will enjoy a favorable chemical demand-supply balance through 2018-2020 (from 2017 earlier), and this will continue to widen PE/PP-naphtha spread. SCC expects local cement demand to grow 3-4% this year, with higher growth in 2H15 off last year’s low base (-3% in 2H14). Building material demand, which normally lags changes in cement demand by 6-12 months, will drop slightly this year and improve next year. SCC expects to take 6-8 months to ramp up its new cement plants in Cambodia and Indonesia (2.7mn tons, +11% of capacity, startup in late 2Q15-3Q15). We thus expect to see more contribution from its new plants in early 2016.