The Siam Cement

The Siam Cement Plc (SCC)

2Q14 profit would be disappointing; SCC's core businesses have not
rebounded as remarkably as expected. We revise down FY2014
earnings forecast by 14%. However, SCC is projected to revive in
2015. We recommend buying when price weakens after 2Q14
earnings report.

- 2Q14 profit estimated at B8,178m, falling 18%yoy
Demand for cement and construction material in every segment dropped in
2Q14 as a result of the political turmoil and long holidays. Profit from
petrochemical is expected to drop as well. While upstream petrochemical
business (SCC holding only two-third stake) has rebounded rapidly,
downstream petrochemical business has not recovered significantly. Though
HDPE-Naphtha spread stayed above US$600/ton, PVC spread has dropped
and PTA and BD prices have remained weak. Meanwhile, paper business has
remained prosperous; demand for packaging has increased thanks to growth
in export. For investment business, dividend from Toyota is projected to drop
from B2.2bn in 2Q13 due to lower domestic automotive demand. Overall,
2Q14 net profit is estimated at B8,178m, falling 18%yoy. 1H14 dividend is
expected at B6/share.
- To invest over B250bn in next five years
ASEAN economy is expected to rebound remarkably from now on. SCC has
announced five-year investment plans worth of B250bn; over 50% of which
will be invested on cement and construction material business expansion: four
cement factories in Indonesia, Myanmar, Cambodia and Laos with the total
capacity of 6.3 million tons/year (ASEAN is currently focusing on
infrastructure development projects). For petrochemical business, conclusion
on Petrochemical Complex valued US$4.5bn in Vietnam would be made within
late-2014. For paper business, Nippon Paper Industries (Japan's largest paper
producer) holds 30% stake in SCC's fibrous chain business; SCC is expected
to focus more on HVA.
- Revise down earnings forecast by 14%. Buy when price weakens
We revise down SCC's earnings forecast by 14% in 2014 and 7.5% in 2015,
reflecting slow rebound in core businesses. We also decrease SCC's fair value
(DCF) from B520 to B500. Despite limited upside, we recommend buying
when price weaken. SCC is expected to grow continuously in a long run and
fully benefit from economic rebound in Thailand and ASEAN.