Siam Cement

Siam Cement Plc (SCC) 

 

1Q15 net profit of Bt11.1bn (Bt9.2/share), +32% YoY and +25% QoQ, 9% above our estimates and 15% above consensus, mainly due to lower interest expenses than expected from FX gains on its US$-denominated loans. Excluding the after-tax Bt1.5bn extra gain from the divestment of its remaining 10% in Michelin (Thailand) gives a normalized profit of Bt9.6bn, +14% YoY and +8% QoQ. Backing the improvement was a better chemical unit, with wider spreads YoY and lower inventory loss QoQ (inventory loss of Bt930mn in 1Q15 vs. Bt3bn in 4Q14) and seasonally better non-chemical units, with higher sales volume and lower maintenance expenses. Of its 1Q15 profit, 44% came from chemicals, 32% from cement and building materials, 8% from paper and 16% from others. 

Company guidance  

- Chemical unit: Of all units, SCC is most positive on chemical, with wider spreads, solid volume, and potential inventory gain. In 2Q15TD, PE/PP-naphtha spread jumped to US$812-819/ton (+30% YoY and +20% QoQ). SCC sees the chance of an inventory gain brought by the bounce in product prices (vs. inventory loss of Bt3bn in 4Q14 and Bt930mn in 1Q15). Polyolefins sales volume should be robust. SCC expects more restocking demand in the near term as inventories are low at buyers. Its PVC and associate spreads are expected to be relatively unchanged. PVC sales volume and production cost will be improved by the easing in VCM shortage. Note that it completed the VCM debottlenecking that will raise capacity by 90K tons in April 2015 and plans to ramp up to full capacity in May 2015.  

- Cement and building materials: SCC believes things have turned the corner, with local cement demand growing 2% in March 2015 (from -5% in Jan-Feb), led by the infrastructure segment (+15% and 30% of the total) and a lower contraction in the commercial and residential segment (-2-3%, 70% of the total). With the government hastening to spend its budget to spur private investment, SCC expects positive local cement demand growth in 2Q15 (vs. -2% YoY in 1Q15). In 2015, SCC expects local cement demand to grow by 3-4%, amid flat building material demand. SCC will book contribution from the addition of 2.7mn tons (adding 11% to total capacity) in capacity in Cambodia in June this year and Indonesia in 2H15. 

- Paper: It will continue to ramp up its new packaging capacity (+17% to capacity), starting in 4Q14, expecting to take six months to bring it to run at full capacity.   

Maintain BUY. We raise 2015 core profit by 4%, to fine-tune with its strong 1Q15 results and wide chemical spreads in 2Q15TD. This leads to a rise in our SOPT PT to Bt600 from Bt570. We like SCC for: 1) stronger 2Q15F core earnings, up YoY and QoQ, led by wider chemical spread and potential inventory gain, together with the seasonal dividend income from Toyota (Thailand); 2) the positive from low oil price on chemical spreads and cracker efficiency as a naphtha-based player as well as lower fuel and transportation costs for its non-chemical unit; 3) its strong 3-year core EPS growth of 16% from wider chemical spreads from favorable demand/supply, better non-chemical volume, and inorganic growth from new investments in ASEAN.