Siam Cement

Siam Cement Plc (SCC) 

 

SCC arranged a meeting to provide an update on its strategy for its cement & building materials unit. In Thailand, SCC estimates 5% cement demand growth in 2014-20F backed by public projects that will lead to greater private investment. It will continue to increase the level of integration in its value chain and high-value added products/services (42% of sales now). It will start up new cement capacity of 6.3mn tons in Cambodia, Indonesia, Myanmar and Laos in 2015-17. Benefits from this move into ASEAN are: 1) high demand growth and good margin; 2) borderless network, lowering logistics costs and raising flexibility.  

 

Thai operations. Thailand’s cement supply will increase by 4mn tons to 60mn tons after TPIPL adds new capacity in 2H15. SCC does not expect a severe impact on the industry from the addition since the entire industry is running at its highest ever utilization rate of 85-90%; as well, the amount is very small against the local sales of 40mn tons and exports of 10mn tons this year.  

 

SCC expects local cement demand growth to be flat this year but forecasts a long-term demand growth of 5% p.a. to 55mn tons in 2020 from 40mn tons in 2014. Based on the span of eight years for the government’s Bt2trn infrastructure projects, SCC estimates direct impact on cement usage at 10-16mn tons (1.3-2.0mn tons/year, without/with high-speed railway) with an even larger indirect impact via stimulating private investment.  

 

Despite the startup of new cement plants in neighboring countries, it will still be doing some exports: regional demand is growing rapidly and it will often be simpler and cheaper to ship from Thailand to buyers near the borders. Cement consumption in main export destinations (Myanmar, Cambodia, and Laos) is expected to grow 7-12% p.a. to 26mn tons/year in 2020 from 14mn tons in 2014. 

 

Regional market. Cement consumption per capita in regional countries is well below Thailand (600kg/year): Myanmar (120kg/year), Indonesia (230kg/year), Cambodia (240kg/year), Laos (430kg/year), and Vietnam (560kg/year). Cement demand growth there was better also: Thai demand contracted 1% YoY in 2014 but grew in Myanmar (+11%), Indonesia (+3%), Cambodia (+10%), Laos (+6%) and Vietnam (+11%). This implies greater opportunities in these countries.  

 

The startup of its new cement capacity of 6.3mn tons (26% of its capacity) in Cambodia, Indonesia, Myanmar and Laos in 2015-17 are on course. It targets EBITDA margin from the new plants to be close to local cement margin in Thailand. With a fragmented cement market in Vietnam (market leaders account for 34% of market share), SCC is looking for an investment opportunity via M&A.   

 

Maintain BUY with PT of Bt630. SCC’s share has underperformed the SET by 10% over the past three months, pricing in its weak 3Q15. This is an opportunity to buy ahead of a better 4Q15 (absence of inventory loss, with seasonal dividend income) and LT earnings from the chemical up-cycle, better cement contribution in Thailand and new overseas projects boosted by robust ASEAN growth in 2015-17F.