The Siam Cement

The Siam Cement Plc (SCC)
- 3Q13 net profit projected at B9.2bn, down 7%qoq
Although the third quarter is usually a high season of the petrochemical
business, we believe SCC would not accelerate its sales in 3Q13 but keep the
stocks to support sales in 4Q13, in which there will be a 45-day maintenance
shutdown of MOC factory. HDPE-Naphtha and PP-Naphtha spreads in 3Q13
are projected to contract slightly from 2Q13, so the profit of the petrochemical
business would only stay flat from 2Q13. For the cement and construction
material business, there would be a support from growing domestic
construction industry to boost a cement demand in July-August 2013 by
9%yoy. Moreover, consolidating of the financial statement with Siam Sanitary
Ware and Siam Sanitary Fitting after the shareholding structure adjustment in
early 3Q13 would generate SCC an extraordinary profit of B1.5bn from a
change of accounting method. For the paper business, decelerating export
volume would depress a demand for packaging paper. Overall, SCC’s sales in
3Q13 are anticipated at B110bn, growing 4%qoq. The normalized profit is
expected at B7.7bn, while the net profit, including the B1.5bn extraordinary
profit, would be B9.2bn or a decrease of 7%qoq.
- Increase core businesses investments for long-term sustainable growth
SCC has announced a five-year investment plan (2014-2018) worth of B250bn
for continuous projects and previously approved projects such as
Petrochemical Complex in Vietnam and cement plants in Burma and
Indonesia, confirming the company’s policy of keeping its business leadership
in Asia. The money used for the investments would come from the company’s
internal cash flow that is projected to increase continuously from a new round
of petrochemical business uptrend since 2014 onward and returns from
investments in the past three years, which were mainly M&A that could
immediately generate cash flow back to SCC.
- Prosperous outlook with robust growth in long run. Buy
With the aggressive business operation through continuous production
capacity expansion, SCC would be able to generate a net profit of B38,703m
in 2013, before increasing to B44,222m in 2014 due to returns from the
investments, especially the petrochemical business that is entering an uptrend
again next year. We recommend BUY. 2013 fair value, using DCF, is B545 or
PER of 16.9x, implying 27% upside from the current share price. Dividend
yield can be expected at around 3%.