Siam City Cement

Siam City Cement Plc (SCCC)  

 

- 3Q15 net profit is B823m, falling 22%yoy 

SCCC posted 3Q15 net profit of B823m, falling 22%yoy. Due to lower domestic cement demand and selling price, the company's income fell 5%yoy to B7,419m. Sales of cement, concrete, and other construction material dropped. Although export to neighboring countries (e.g. Cambodia, Myanmar, and Laos) grew, it was not strong enough to compensate for declining domestic sales as price competition became fiercer, thus depressing 3Q15 gross margin to 43.1%. SG&A stayed unchanged from 2Q15. B23.4m shared profit from LANNA was recognized, lower than B50-100m/quarter in the past. Overall, SCCC's 9M15 net profit was B3,621m, falling 18%yoy.

- Government investment projects to boost cement usage in 2016 

There were many problems this years that cause domestic cement usage not to grow as expected; drought occurred, purchasing power has declined, the private sector has lost confidence, and government investment projects were not in line with the schedule. However, there would be an improvement after the government stimulates the economy through money injection for the grassroots economy and acceleration of government infrastructure projects, thus boosting domestic cement usage in 2016. In addition, CLMV export market has shown potential growth. SCCC has entered a joint venture with Chip Mong Cement Corporation in Cambodia, involving construction of a cement plant in Cambodia (Cambodia's first overseas cement plant) with 1.5 million tons/year production; the construction will start in 2016. 

- Revise down forecast, but BUY for high upside, dividend 

As SCCC's profit plunged severely in 3Q15, we revise down the company's earnings forecast by 13.5% to B4,375m in 2015 and by 8.3% to B5,239m in 2016, provided that the government's stimulus plans boost cement usage from 2H16 on. 2016 fair value (based on P/E ratio) of B410 shows 17.5% upside and dividend yield is 4-5%p.a, which are interesting; we reiterate BUY.