Siam Cement

Siam Cement Plc (SCC) 

Investment thesis

Last week, we hosted the SCG Dinner Talk 2015. The speakers were Mr Kan Trakulhoon, CEO, Mr Chaovalit Ekabut, CFO, and Mr. Cholanat Yanaranop, president of SCG Chemicals. The information we grabbed from the event confirmed our confidence in the value of taking positions in SCC now. Our BUY call stands with a YE15 target price of Bt540.

Cement-Building Materials market is recovering

Mr Kan said cement demand resumed YoY growth in December and is expected to rise 6% in 2015, driven by state infrastructure and commercial projects. The firm is not very concerned about downside price risk, even though TPIPL is expanding capacity. The firm expects only a slight and short-term decline. The new supply should be fully absorbed by demand growth in 2015-16. In any case, TPIPL is likely to export much of its expanded production, given attractive export prices.

Cement margin hiccups during plant start-ups

EBIT margin may come under pressure from depreciation expenses for new cement plants in Cambodia (2Q15) and Indonesia (3Q15), but the impact will be only short-term, as the firm expects to ramp up to full utilization within only 6-7 months of start-up dates. 

Bullish about Chemical business

Fatter spreads, particularly downstream spreads (HDPE-Ethylene and PP-Propylene), and greater sales volume (as a result of de-stocking) should mitigate the effect of inventory losses caused by sharp drops in the prices of Naphtha and olefins products. The long-term outlook is promising. The olefins spread up-cycle is likely to extend into 2018, thanks to delays to new supply. Management believes this cycle will be a super-cycle for olefins.

Long Son project delayed slightly

SCC updated on the Long Son petrochemical complex in Vietnam. It is in the process of EPC bidding clarification and negotiating with creditors about terms and conditions. The project will be delayed slightly because financial closure won’t be achieved by March 2015, as was earlier planned. 

CAPEX budget of Bt250bn for FY15-19

SCC has set a CAPEX budget for FY15-19 of Bt250bn, including committed acquisition targets. Management said there are plenty of opportunities to acquire firms in ASEAN and negotiations are ongoing.

The succession plan

Mr Roongrote Ransiyopash, president of SCG Paper, is the CEO-in-waiting, pending board approval. Some aspects of strategy may change after the new CEO steps in, but the core business thrusts—expansion within ASEAN and building the HVA portfolio will remain the same.