The Siam Cement

The Siam Cement Plc (SCC)

4Q13 net profit equates to B8.2bn, dropping 16%qoq
SCC posted 4Q13 net profit at B8,206m or a decrease of 16%qoq,
substantially higher than our projection of B7,053m. The better-thanexpected
earnings resulted from a good profit from the petrochemical
business. Spreads of main products have widened, particularly PENaphtha
spread that made a four-year high at US$590/ton. At the same
time, SCC booked an extraordinary gain of B600m from selling of some
of its investment in PTTGC. Accordingly, despite a 45-day major
overhaul of MOC factory, the aforementioned factors helped negate an
effect from decreasing sales and the Fx loss from SCC’s unwind position
in Fx hedging. Profits from the cement and construction material
businesses grew 11%yoy, thanks a 6%yoy increase in domestic cement
demand following an expansion of the businesses and trades in Bangkok
and perimeter. However, 4Q13 was a bad quarter for the paper
business; the profit plunged 29%yoy due to high raw material cost and
fierce competition as well as maintenance shutdowns of many paper
plants of SCC in the quarter. Overall, FY2013 net profit was B36,719m,
growing 56%yoy. The company announced 2H13 dividend of B7; XD
date is on 1 April 2014.

Petrochemical uptrend negates other business downtrend
The petrochemical business uptrend cycle, reflecting from wider product
spreads, would fully benefit SCC as the MOC factory has resumed its
operation after the major overhaul, especially in the first quarter of the
year, which is a high season of petrochemical business. On the other
hand, the cement and construction material businesses have begun to
get impacted by the political uncertainty that made cement demands
decline. In the first three weeks of January, domestic cement demand
increased only 2%yoy; if the political turmoil drags on, FY2014 cement
demand would grow only 2-3%, which would be the lowest growth in
four years. At the same time, the paper business would still be
depressed by several negative factors, especially hiking raw material
cost.

Strong fundamental factors, ready for sustainable
growth. Buy
An aggressive business plan of SCC to become a leader in ASEAN via
continuous investment expansion with a budget of B40-50bn a year and
an attempt to increase high value added products (HVA) to reduce
earnings fluctuation has generated SCC sustainable growth. We estimate
FY2014 net profit at B39,342m, increasing 7%yoy. 2014 fair value, DCF,
is B520, or PER of 15.86x. Buy.