The Siam Cement

The Siam Cement Plc (SCC)  

 

- 3Q15 net profit estimated at B9,428m, up 20%yoy 

The construction industry, especially residential segment, has slowed down again in 3Q15 due to declining purchasing power and confidence in the economy. Although the government's investment projects boost cement usage, 3Q15 cement sales are projected to fall 2-3%yoy. The petrochemical business has entered a high season, so plastic sales volume is projected to rise from 440,000 tons to 500,000 tons. However, petrochemical product prices have decreased as crude oil price fall, so the company's earnings may not grow significantly as expected; ethylene price has dropped by over US$400/ton from the previous quarter, possibly resulting in B1.5-2bn stock loss. For the packaging business, orders for food and beverage packages have declined as a result of the drought. SCC would not recognize dividend income from investment like the previous quarter. Overall, 3Q15 net profit is estimated at B9,428m, plunging 32%qoq but rising 20%yoy. 

- Strong in long run due to new capacity 

The government will work on most transportation investment projects in 2016-2020, boosting domestic cement usage from 2016 on. SCC's cement production capacity would increase by 6.3 million ton (26% of current capacity) within 2017, so the company would be ready for business opportunity ahead. The petrochemical business would remain in this uptrend at least until 2017, and debottleneck of Chandra Asri plant would boost its capacity by 40% in 2016. The packaging business would start to benefit from 2014 paper capacity expansion, and the company would focus more on consumer products with higher profit margin.  

- Solid fundamental factors, good for long-term investment. BUY 

Although 2015 earnings forecast may be revised down after 3Q15 earnings report, investors are possibly looking forward for potential improvement in 2016 earnings owing to every core business. We reiterate BUY. Fair value (DCF) is B580.