Siam City Cement

Siam City Cement Plc (SCCC)
- 3Q13 normalized profit is B1.218bn, growing 51%yoy
SCCC's 3Q13 net profit was B1.212bn (B1.218 excluding B6m Fx loss), growing
51%yoy. SCCC's revenue rose 15%yoy, along with domestic construction.
Moreover, cement price in Thailand and bordering markets increased, whereas
coal price fell. Thus, 3Q13 gross margin was as high as 45.6%. However,
increase in provision for employee expense raised administrative expense from
the normal level by B100m. Moreover, share of profit from LANNA dropped to
B40m. SCCC's 9M13 normalized profit was B4.044bn, growing 31%yoy. SCCC's
end-2013 net gearing rose to 0.26x after August interim dividend payment.
Thus, there is less shareholding.
- Rising production capacity and cement price to boost 4Q13 profit
Demand for cement in Thailand and neighboring countries has been
continuously rising. Thus, in August 2012, SCCC started a plan to reopen
cement kiln #1, which had been closed since 2008. It would resume production
in October 2013. SCCC has improved the kiln on alternative fuels system and
raised its production capacity from 4,000 ton/day to 4,500 ton/day. As domestic
cement price has been stable, SCCC's 4Q13 profit is likely to stay above B1bn.
SCCC's FY2014 earnings result is likely to be prosperous, both from cement
business that benefits from increase in production capacity and from Conwood
factory in Indonesia, of which the income would be recognized in 2H14.
- Switch to use FY2014 fair value, 19% upside. Upgrade
from "HOLD" to "BUY"
As booked administrative expense was higher than expected and share of profit
from LANNA dropped severely, we revise down SCCC's FY2013 profit forecast by
7.5% to B5.243bn, growing 44%yoy. FY2013 profit is projected to rise 15%yoy
to B6.038bn. We derive 2014 fair value (18x PER) at B473 with 19% upside and
4% dividend yield. We upgrade our recommendation from "HOLD" to "BUY".