Siam Cement

Siam Cement Plc (SCC)  

 

We estimate 1Q16F earnings at Bt11.7bn, +6% YoY and +2% QoQ; removing extra gains gives a core profit of Bt11.7bn, +22% YoY and +7% QoQ, with better chemical and paper units making up for the weaker cement and building materials unit. Next quarter will see some softening YoY off last year’s high base for the chemical unit, but 2H16F will turn back up on a robust PE chain, more equity income from Chandra Asri after debottlenecking and better local and overseas cement units. Maintain BUY with end-2016 SOTP PT of Bt580.   

 

Expect 1Q16F net profit of Bt11.7bn, +6% YoY and +2% QoQ. Excluding Bt1.5bn in gains from asset divestment in 1Q15 and Bt480mn in 4Q15 reveals a rise in core profit of 22% YoY and 7% QoQ. Behind the growth YoY is a better chemical unit (gain on weak THB/US$, inventory gain, wider PE-naphtha spread, and higher equity income) and paper unit (wider price and cost gap), outpacing the softer cement and building materials unit (slight drop in local price and higher depreciation). The QoQ growth arises out of seasonal highs in all units that will offset lower dividend income. It will release results on April 27.  

 

1Q16F highlights. Chemical unit (62% of 2015 earnings): We expect inventory gain of ~Bt500mn (vs. inventory loss of Bt930mn in 1Q15 and gain of Bt330mn in 4Q15). Polyolefin volume will be firm YoY and rise QoQ from seasonality. PE-naphtha spread widened to US$752/ton (+8% YoY and +6% QoQ) from favorable demand and supply. PP-naphtha spread was US$554/ton, -15% YoY from high additional supply but +2% QoQ from seasonality. We expect better equity income after Chandra Asri (Indonesian cracker, 30% held by SCC) restarts post debottlenecking that boosted capacity by 40%. With more capacity and better efficiency, Chandra Asri, running at about 90% utilization rate now, is set to contribute profit after a minimal loss in 4Q15.  

 

Cement and building materials unit (23% of 2015): We expect local cement sales volume growth to line up with BoT figures at 2% YoY in 1Q16F, backed by more government projects. Local building materials sales volume will slip, but less than the  -1% in housing products and -4% in ceramic tiles seen in 2015. Local cement price is stable QoQ but down 3% YoY, while local building material prices are unchanged. We expect continued high depreciation expenses from the startup of new cement plants in Cambodia and Indonesia in 2H15, as it will take six months to a year to ramp up production to run at 80-90% (vs. 70-80% now).  

 

Paper unit (7% of 2015): We expect better earnings on wider product price and cost gap and the absence of seasonal maintenance expenses.  

 

2Q16F outlook. We expect 2Q16F to show a fall YoY off last year’s high base in the chemical unit (high PE/PP-naphtha spreads of US$785-812/ton from cracker shutdown of 6-7% of global capacity at that time plus an inventory gain of Bt970mn in 2Q15). QoQ, 2Q16F will be flat, with seasonally lower sales volume in all units offset by seasonal dividend income from Toyota (Thailand).