The Siam Cement

The Siam Cement (SCC)

- 4Q13 net profit projected at B7bn, down 28%qoq
SCC’s earnings tend to fall apparently in 4Q13. A 45-day major overhaul of MOC
factory would cause downstream petrochemical plants to close temporarily due to
lack of raw material, so petrochemical sales, which usually enter a low season in
the fourth quarter, fall significantly. At the same time, earnings of BST and Siam
Mitsui PTA, associated companies, would be weak as a result of low BD and PTA
spreads. Furthermore, with the weakening Baht, SCC might suffer a Fx loss of at
least B1bn from its unwind position in Fx hedging and its current US Dollar debt of
around US$1bn. Other core businesses i.e. cement and construction material also
tend to show lower profit on seasonal effect, while the paper business is still
facing an increase in raw material cost and a fierce competition. However, SCC
usually books dividend income from investment business in this quarter. Overall,
4Q13 net profit would stand at B7,053m, decreasing 28%qoq.
- Petrochemical business, major profit driver in next three years
A new round of petrochemical business uptrend cycle from limited new supply
during 2014-2017 would make product spreads in 2014, especially PE-Naphtha,
widen by US$50-100/ton. At every US$100 rise in the spread, SCC’s profit will
increase by B6bn. For the cement and construction material businesses that have
grown substantially over the past three years, they would likely grow at a slower
rate due to larger cement consumption base and the political turmoil that has held
back a cement demand for the government’s construction projects, which is 30%
of total demands. For the paper business, there will be several maintenance
shutdowns for capacity expansion and machine improvement this year. In
addition, there will be additional expenses in 2014, which are depreciation of
assets acquired in 2013 i.e. a new office building and overseas factories, and
personnel expense from 8,000 new employees hired to prepare for the growth in
ASEAN.
- Strong fundamental factors with aggressive strategy. Buy
An aggressive business plan to generate growth in ASEAN via continuous
investment expansion over the past five years, combined with a benefit from
petrochemical business uptrend cycle, would make SCC’s profit grow continuously
in the next three years. 2014 fair value, DCF, is B520 or PER of 15.86x. BUY.