Siam Cement

Marching steadily forward BUY

Siam Cement Plc (SCC)

- 3Q14 profit estimated at B7,170m, shrinking 27%yoy

The continuously decreasing oil price is advantageous to petrochemical

spread. Naphtha-HDPE spread surged to US$685/ton in 3Q14 from

US$618/ton in 2Q14. Nevertheless, most of the benefit goes to an upstream

petrochemical business, in which SCC has only 65% stakeholding, whereas

spread from a downstream petrochemical business, in which SCC has 100%

stakeholding, and spread from products of its subsidiary, Butadiene and

PTA, are still low. Therefore, the company will not fully benefit from the high

season. For the cement and construction material business, the profit is

projected to fall 39%yoy because in 2013 SCC had a non-recurring profit

from investment revaluation of B1.7bn. Moreover, given the economic

slowdown this year, domestic cement demand in 3Q14 is projected to

decrease 3%yoy. For the paper business, profit would weaken significantly

from a maintenance shutdown that has been postponed from 1H14 to this

quarter. Overall, 3Q14 net profit is estimated at only B7,170m or a

decrease of 27%yoy.

- Investing steadily on ASEAN market

SCC has been aiming for long-term steady growth, planning to spend B40-

50bn/year of five years on its mega project, mainly on cement business.

The company has planned to expand its cement production base in ASEAN

countries (Myanmar, Cambodia, Indonesia, and Laos) with potentially high

growth and much lower cement per capita consumption than Thailand. For

petrochemical business, a clear announcement about Petrochemical

Complex valued US$4.5bn in Vietnam would be made in 1Q15 after the

company completes for land lease, signing for long-term feedstock, and

bidding for EPC. SCC has been focusing on ASEAN market as 21% of its

sales come from ASEAN.

- Entering uptrend in nest three years. Reiterate BUY

SCC's 9M14 earnings have not been strong as a result of many unexpected

negative factors. However, the economy has been rebounding and transfer

of profit from upstream to downstream petrochemical business has been

improving. The petrochemical business would enter an uptrend from 2015

on, boosting SCC's earnings in the next three years. We derive FY2015 fair

value (DCF) at B515, reiterating BUY.