The Siam Cement
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Entering uptrend BUY
The Siam Cement Plc (SCC)
- 4Q14 profit to fall 10%yoy to B7,406m
SCC's 4Q14 earnings are estimated to drop from our initial forecast of B9bn
but remain strong. For the petrochemical business, though B2.5-3bn stock
loss is expected due to declining oil price, downstream petrochemical
spreads (SCC holding 100% stake) have improved significantly, probably
resulting in over B1bn profit. The construction material (cement) business is
expected to grow as domestic cement usage rebounded for the first time in
six months in December. Similarly, profit from the paper business is
projected to rise slightly as fewer factories have undergone maintenance
shutdown. For the investment business, 4Q14 dividend yield (generally
booked in the fourth quarter, mainly from TOYOTA) is projected to drop by
20%yoy to B1.5bn as a result of weak car sales in Thailand. Overall, 4Q14
net profit is estimated at B7,406m, falling 10%yoy.
- Core businesses to grow steadily
SCC's core businesses are projected to grow remarkably, especially the
petrochemical business. Although production capacity does not increase,
Polyolefin-Naphtha average spread is projected to widen by US$100/ton,
boosting SCC's profit by B6bn, while new olefins supply from shale gas is
expected to drop. Thus, this petrochemical uptrend is anticipated to last at
least until 2018. The construction material (cement) business is projected to
benefit from government infrastructure mega projects thanks to extra 10
million tons cement usage from the usual growth rate in the next eight
years (there would be over 6.3 million tons new cement supply from 2Q15
to 2Q17). For the paper business, there would be new 400,000 ton/year
new supply from a packaging paper factory in Khon Kaen, which is in line
with the company’s plan. As one of Thailand's largest industries, SCC's
overall businesses is expected to benefit from the oil price plunge.
- New fair value is B530. BUY
SCC's fair value (DCF) is revised up from B515 to B530 to reflect better
growth, mainly from longer petrochemical uptrend. We reiterate BUY.
