Siam City Cement

Siam City Cement Plc (SCCC)

- 1Q14 net profit leaps 56%yoy to B1903m
SCCC's 1Q14 net profit is reported at B1,903m. Excluding B74.6m
Fx gain, SCCC's 1Q14 normalized profit grew by 48%yoy to
B1,828m, making the record high. Sales volume rose by 14%yoy to
B8,653m after the cement kiln #1 (1.2 million tons/year capacity)
was reopened. Though the political turmoil pressed domestic sales
slightly, it was compensated from an increase in export. Gross
margin increased to 47.2% thanks to lower cost on coal and
improvement in economies of scale. Moreover, 1Q14 SG&A/Sale
made the six-year lowest owing to good expense control. Share of
profit from LANNA was booked at B93m, slightly rising. In terms of
financial structure, end-1Q14 net gearing dropped to 0.17x. SCCC's
- 1Q14 book value rose to B92.1.

Political issues to press profit throughout 2014
The prolonged political turmoil and delayed government investment
projects have been affecting cement business. Some of the mega
infrastructure projects and property development projects continued
from 2013 have been completed, thus lowering sales volume. As a
result, SCCC's need to promote export volume, which has far lower
price than domestic price, possibly pressing gross margin
throughout 2014. However, thanks to the acquisition of two super
block factories (Singhaburi and Ratchaburi, total capacity is 4.75
million sq.m/year) and its Conwood factory in Indonesia that will
start a commercial run in 2Q14, SCCC's net profit is expected to
improve from the average of B1bn to B1.2-1.5bn in 2Q14.

- Attractive upside and dividend yield. Buy
We project FY2014 net profit to grow by 11%yoy to B5,345m. We
derive FY2014 fair value at B418, implying 16.5% upside with 18x
P/E ratio. We expect dividend yield at 5%. We reiterate to buy.