Siam Cement Plc

4Q15 net profit was Bt11.4bn (Bt9.5/sh), +29% YoY and +27% QoQ, 16% above our estimates and consensus of Bt9.8bn on: 1) chemical inventory gain of Bt330mn (vs. our estimate of loss of Bt700mn); 2) FX gain of Bt510mn; 3) divestment gain from packaging unit of Bt480mn. Behind the earnings improvement was better chemical (gain on weak THB/US$, inventory gains vs. loss in 4Q14 and in 3Q15) and packaging (higher packaging volume) units that made up for the weak cement and building materials unit (weak sales amid higher depreciation). Of 2015 profit, 62% came from chemicals, 23% from cement and building materials, 7% from packaging and 8% from others. Adding to 1H15 DPS of Bt7.5, SCC announced a 2H15 DPS of Bt8.5, XD on April 4.  

 

Company guidance  

 

- Chemical unit. PE spreads are good, reflecting tight demand vs supply; however, PP spreads will weaken further on a supply glut mainly from China. Indonesia: In 4Q15 it completed a shutdown at its Indonesian complex (Chandra Asri, 30% held by SCC) for debottlenecking that raised output to 860K tons p.a. (+43%) in 4Q15. It targets a ramp up to full capacity in Feb 2016. Vietnam: The Qatar Petroleum Group exited the new Vietnamese complex (46% stake held by SCC), in which it held 25%, but continues to contract to provide the feedstock. SCC expects it will take six months to find a new shareholder to replace Qatar Petroleum Group.  

 

- Cement and building materials. SCC estimates local cement demand growth of 3-5% in 2016 (vs 0% in 2015 and +2% in 4Q15), largely arising out of more activity by the government sector (30% of total) as it gets going on its infrastructure projects and by the commercial sector (20% of total) as sentiment improves. A portion will also come from a better residential sector (50% of total) in 2H16. Despite additional supply from TPIPL, cement price competition will be less intense once demand picks up in 2H16. After the startup of new cement plants in Cambodia (mid-2015) and Indonesia (Nov 2015), SCC plans to ramp utilization up to 70-85% in 2016F. The new cement plants in Myanmar are expected to start up in mid-2016. SCC acquired the remaining 15% (worth Bt2.2bn) in the Prime Group (Vietnamese ceramic tile) giving it 100% as of Jan 2016.   

 

- Packaging unit: SCC expects packaging demand to improve slightly in local and export markets. Packaging prices will be stable while raw material costs (recovered paper and fiber) are trending down. This will widen price and cost gap.  

 

-1Q16F. We expect 1Q16F core earnings to be stable QoQ but rise YoY, on: 1) benefit from weak THB/US$; 2) wider PE spread (+6% YoY and QoQ in 2016TD); 3) better equity income post debottlenecking of Chandra Asri; 4) minimal inventory gain/loss. 

 

- Maintain BUY. We trimmed 2016 earnings by 3% to Bt47bn. Behind this is: 1) an 8% cut in PP spread to US$570/ton; 2) a 5% cut in local cement price to Bt1,775/ton; 3) the benefit from the change in FX assumption to Bt36/US$ from Bt35/US$. Post revision, SCC’s earnings are poised to grow 9% in 2016, backed by a robust PE chain, more equity income from Chandra Asri after debottlenecking, and better local and overseas cement units in 2H16. Maintain BUY with a new end-2016 SOTP PT of Bt580 (from Bt600).