Siam Cement

Siam Cement Plc (SCC)

Investment thesis
At the post-results meeting yesterday, we felt that management was less bullish on the company’s 2H13 outlook, due to slowdowns in domestic consumption and the Chinese economy. However, SCC’s long-term growth profile remains strong, driven by the chemical up-cycle and regional expansion. We reaffirm our BUY call with a YE13 target price of Bt500.
2Q13 review and 3Q13 outlook
SCC reported a 2Q13 net profit of Bt9.9bn, up by 132% YoY and 13% QoQ. The result beat our estimate and the consensus by 14%, due mainly to higher-than-expected dividend income from Toyota. The stronger YoY number was mainly attributable to better performances by the Chemical and Cement-Building Material businesses. In QoQ terms, dividend income from Toyota more than offset the effect of seasonally weaker Cement-Building Materials and Paper operations.
3Q13 looks set to be even stronger, led by chemical high season and ongoing demand growth for cement and building materials. Moreover, there will be an accounting profit of around Bt1.5bn in 3Q12 from a fair value adjustment for the investment in Siam Sanitary Ware and Fittings.
Robust Chemicals performance
Chemicals reported stronger operational numbers, both YoY and QoQ, led by fatter olefins spreads and greater sales volumes, a turnaround from a loss of Bt1bn in 2Q12 to a profit of Bt2.6bn in 2Q13. On a QoQ basis, the business reported a flat performance even though there was an FX gain of Bt900m in 1Q13 versus an inventory loss of Bt800m in 2Q13. Olefins spreads in 3Q13 are expected to be flat QoQ, but seasonally greater sales volume and an inventory gain should help the business to report further QoQ growth. The only hiccup for the Chemicals business is the slated 45-day shutdown of the MOC plant in 4Q13.
Cement-Building Materials continues strong, but guidance is lower
Domestic cement demand grew 9% YoY in 2Q13, which also pushed the cement price up by Bt50/tonne to Bt1,850-1,900/tonne, the highest price since 2Q11. Management expects demand growth to decelerate to 7-8% in 2H13 and eyes full-year growth of 8-10%, down slightly from previous guidance of 10% three months ago, as govt projects have been slower to break ground than anticipated. Domestic demand for building materials is anticipated to soften in 2H13 as well.
Paper remains weak
Packaging Paper and Fibrous domestic sales declined both YoY and QoQ in 2Q13. Packaging Paper faced slowdowns in the F&B and consumer product categories, while Fibrous experienced demand softness from publication and commercial materials. Weaker domestic demand and intensifying regional competition are likely to continue to pressure the Paper business in 2H13.