Siam Cement

Siam Cement Plc (SCC) 

 

We expect SCC to report a strong 1Q15F net profit of Bt10.2bn, +21% YoY and +15% QoQ, on April 29. We continue to like SCC for several reasons: 1) it benefits from low oil price via wider spreads and cheaper fuel costs and from a weak baht as a net exporter; 2) 2Q15 profit will continue strong, 3) solid 3-year earnings growth of 16%. BUY with end-2015 SOTP PT of Bt570.  

1Q15F net profit Bt10.2bn, +21% YoY and +15% QoQ, with growth provided by: 1) an extra gain of Bt1.6bn from the divestment of its remaining 10% in Michelin (Thailand); 2) better chemical units, with wider spreads YoY and lower inventory loss QoQ;  3) seasonally better non-chemical units, with higher sales volume and lower maintenance expenses. Earnings will be released on April 29. 

1Q15F highlights. Chemical unit (36% of 2014 earnings): Of all units, this will show the most improvement, with wider spreads YoY and lower inventory loss QoQ. We estimate inventory loss of ~Bt700mn in 1Q15, a drop in the bucket compared to the Bt3bn in 4Q14. Operations in PE/PP chains will be good, with wider PE/PP-naphtha spread of US$692/ton (+11% YoY but -15% QoQ) and solid volume in high season. PVC-EDC/ethylene spread widened to US$376/ton (+12% YoY and +8% QoQ), but PVC sales volume will drop from the 60-day VCM shutdown for debottlenecking. Contribution from associates will be relatively unchanged, with firm MMA-naphtha spread but weak BD-naphtha and PTA-PX spreads. Cement and building materials unit (39% of 2014): We expect growth QoQ from seasonally higher sales volume but a slip YoY from weak demand. Local cement sales volume is believed to have fallen 2% YoY (vs. +4% in 1Q14 and -3% in 4Q14). A slight drop in the volume of housing product sales (roofing tiles and fiber cement products) will be offset by the rise in exports of ceramic tiles. Margin will stay healthy, thanks to lower costs for fuel (coal, power and natural gas) and transportation (diesel) amid stable product selling prices. Paper unit (10% of 2014): We expect higher contribution QoQ without last quarter’s planned maintenance shutdown, but a slight drop YoY from additional expenses related to the startup of new packaging capacity in late 4Q14.    

Gains on low oil price and weak baht. The low oil price is positive for chemical spreads and cracker efficiency as a naphtha-based player as well as lowering fuel and transportation costs for its non-chemical unit. As a net exporter, SCC’s earnings will rise by Bt500mn-Bt1.0bn (after hedging) from each fall of one baht to the US$. 

Strong 2Q15F, up YoY and relatively stable QoQ, mainly on wider PE/PP-naphtha spread, at US$776/ton (+24% YoY and +12% QoQ) in 2Q15TD, and the seasonal dividend income from Toyota (Thailand) that will offset the absence of extra gain from the sale of Michelin Thailand recorded in 1Q15.  

Solid 3-year EPS growth of 16%. We expect profit to hit new highs through 2017. Chemical spreads will be widened by the good global demand and supply environment and cement sales volume will pick up as local demand returns and upon startups of its new plants in Cambodia, Indonesia, Myanmar and Laos over 2015-2017, adding 6.3mn tons, +26%, to capacity. Cement margin will improve as a portion of low-margin export sales (4mn tons now) will be diverted to the local market where margin is higher.