Construction Material

Construction Material

- No hope for political solution. Business driving factors begin to recede
As a result of the political turmoil, the government-supported mega
investment projects could not make a progress. At the same time,
December building contractor confidence fell to a two-year low, which
would eventually impact the private investment. Lower construction
activities would make the growth of demands for cement, concrete, tiles in
2014 lower than our projection. Most construction projects this year would
be continuous work from 2013, including previously approved
government’s mega projects of mass transit and government offices
construction, as well as private housing projects opened for sale since last
year. For new construction projects, it needs to wait for clearness about
the political situation, especially an establishment of a new government to
carry on all the construction projects, which is believed to take at least six
months to reach a conclusion.
- Construction material demands to grow less than expected in 2014
Considering from the situation in 2008 – 2009 in which there were political
unrests, domestic cement demand grew only 2-3%, versus normal growth
of 6-7% a year. Accordingly, we revise down our forecast for cement
demand growth in 2014 from 7% to only 2%, while demands for floor and
wall tiles have been contracting since early 2013 because consumers’
purchasing power had been drawn to the first-car scheme and because of
decreasing agricultural product prices. We believe the political situation,
which is having a direct impact on the country’s economy, will make the
construction material business face a fiercer completion in the market in an
attempt to capture sales amidst the market’s lack of stimulus.
- Cut 2014 profit forecast by 9.1%. SCC is top pick
We revise down our FY2014 net profit forecast of six construction material
companies under our coverage by 9.1% to B48,994m, but maintain
NEUTRAL for the sector as fundamental factors of many companies are still
healthy. Top pick is SCC(FV@B520) for its aggressive business plan of
continuous capacity expansion over the past seven years, especially in
ASEAN countries that have high economic growth. Moreover, SCC will also
benefit from the uptrend cycle of the petrochemical business in 2014,
which would help compensate for duller performance of the construction
material business.