Siam Cement

Siam Cement Plc
3Q13F net profit Bt9.2bn. We estimate 3Q13F net profit of Bt9.2bn, +43% YoY but -7%
QoQ. Excluding an extra gain of Bt1.5bn from the revaluation of its investment value to
fair value after the purchase of shares in Siam Sanitary Ware and Siam Sanitary
Fittings from Toto Group gives a normalized profit of Bt7.7bn, +20% YoY but -22% QoQ.
All business units will show improvement YoY, partly from last year’s low base caused
by the explosion at BST (May 2012) and fire at Phoenix (July 2012). The decline QoQ
reflects the absence of seasonal dividend income. Earnings will be released on
October 30.
3Q13F highlights. Earnings from chemical unit are poised to rise YoY and QoQ,
beating out other units in the quarter. Backing this is: 1) higher sales volume QoQ from
seasonality and YoY after last year’s explosion at BST (May 2012); 2) wide chemical
spreads: HDPE-naphtha at US$565/ton (+32% YoY but -3% QoQ) and PP-naphtha at
US$593/ton (+12% YoY but -4% QoQ); 3) small inventory gains from the rise in product
prices after the inventory loss of Bt800mn in 2Q13.
For non-chemical units, improvement will be slower than for chemical. In 3Q13F, we
estimate domestic cement sales volume at 6-7% YoY (vs. 9-10% YoY in 1H13A) with a
continued rise in cement selling price (+2% QoQ and +5% YoY). Building materials sales
volume growth will be relatively stable compared to last year because of the domestic
demand slowdown, but contribution from the recent Vietnam ceramic acquisition,
Prime Group (first recorded in 2Q13), will be higher, as it has improved production
efficiency and raised utilization rate. For the paper unit, we expect to see improvement
YoY after last year’s fire at Phoenix (July 2012) but drop QoQ from slower sales volume
growth plus a narrower paper price and cost gap: packaging unit at US$280/ton (-11%
YoY and -7% QoQ) and fibrous unit at US$152/ton (-24% YoY and -1% QoQ).
4Q13F outlook. In 4Q13F, we expect core earnings to slip QoQ on low season for all
business units and a 45-day maintenance shutdown for MOC (its second cracker),
which together will overwhelm the seasonal dividend income (mainly from Toyota
Thailand). We expect earnings to improve YoY, mainly off last year’s low base after the
explosion at BST (May 2012) and fire at Phoenix (July 2012).
Maintain BUY. We maintain BUY with a mid-2014 SOTP PT of Bt575. We like SCC for:
1) good 3Q13F earnings, backed by a robust chemical unit and firm non-chemical units;
2) attractive valuation, trading at 13x 2014 PE vs. 3-year EPS growth of 26% from higher
volume at the non-chemical units, wider spread at the chemical unit and inorganic
growth from its new investments in ASEAN.