Siam Cement

Siam Cement Plc (SCC) 

 

Investment thesis

BLS hosted the SCG Dinner Talk on Friday, the key speakers of which were SCC’s next chief executive, Roongrote Rangsiyopash (effective Jan 2016), and chief financial officer Chaovalit Ekabut. In our view, SCC’s strategies to create a sustainable growth platform should make the stock worth holding as a long-term investment. Although short-term earnings growth would appear unexciting as Chemical spreads seem to have peaked and Cement is facing the threat of new supply, we believe its cheap valuation has priced in such a weak short-term outlook.

SCC next generation

Mr. Roongrote said SCC’s core strategies (ASEAN expansion and a focus on HVA products and services) would remain unchanged after he takes the helm next year. The ASEAN Economic Community (AEC), effective 2016, will open opportunities for SCC to expand more aggressively in the region, but will also bring more intense competition. However, management believes its innovative products and services should cope with the rising competition and differentiate it from competitors. SCC aims to be a customer-oriented company and to turn customer requirements into products and services. Furthermore, to deal with uncertainties and dynamic changes in cost competitiveness, SCC will configure its plants to be more flexible in using raw materials.

Challenging year for CBM

The year 2016 should be challenging for SCC’s CBM business. Due to delays in government infrastructure projects and weak consumption, domestic demand for cement in 1H16 thus should not grow strongly enough to absorb new supply from TPIPL. The Cement price should soften but management believes that a price war would not happen given that all cement producers are running at nearly full utilization rates. SCC will put priority on margin rather than market share.

There might be some hiccup on the demand side in Myanmar as many investments are likely to be put on hold until there is a clear picture on Naypyidaw’s policies. However, management believes that ongoing construction in Myanmar should underpin demand to continue growing. There would be no impact on its cement plant (COD mid-2016), as the new capacity of 1.8m tonnes is still less than SCC’s export volume of 2.3m tonnes to Myanmar this year.

Delay to Long Son petrochemical complex

Management updated that the Long Son petrochemicals complex in Vietnam will be pushed back as Qatar Petroleum (holding 25%) exits the project. SCC (holding 46%) and its partners Petro Vietnam and Vinachem (together holding 29%) are finding the best solution, but clarity may be unavailable until mid-2016. Another risk that may cause a further delay is that there will be a change in the Vietnamese government next year. Petro Vietnam and Vinachem, as state-owned companies, may have to wait for a decision from the new government.