Siam Cement

Siam Cement Plc (SCC) 

 
We estimate 2Q16F at Bt13.9bn, flat YoY and +2% QoQ, with a better chemical unit, weaker cement and building materials unit and a stable paper unit. SCC has underperformed the SET by 5% YTD, pricing in its slip in 2H16F earnings HoH (expenses for new cement plant in Myanmar in 3Q16 and cracker shutdown in 4Q16), though earnings will still grow YoY (healthy spreads and absence of non-recurring losses). Progress on bidding for infrastructure projects in 2H16 will be a price catalyst. Maintain BUY with SOTP PT of Bt600.  

 

Expect 2Q16F net profit of Bt13.9bn, flat YoY and +2% QoQ. The unchanged YoY earnings is due to the offset of a better chemical unit (gain on weak THB/US$ and higher equity income) for the softer cement and building materials unit (lower local prices and higher depreciation), with contribution from the paper unit little changed. 1H16 will account for 56% of our 2016F forecast (vs. 53% over the past five years). We estimate 1H16F DPS of Bt7.5. It will release results and announce dividend on July 27.

 

2Q16F highlights

 

- Chemical unit (62% of 2015 earnings): This will continue to be its most outstanding unit. We expect inventory gain of Bt400mn (vs. gain of Bt970mn in 2Q15 and loss of Bt300mn in 1Q16). Polyolefin and PVC volume will improve YoY but drop QoQ from seasonality and a 23-day VCM plant shutdown in 2Q16. Chemical spreads were mixed. PE-naphtha spread was US$743/ton (-8% YoY and flat QoQ) and PP-naphtha spread was US$680/ton (-13% YoY but +15% QoQ) from last year’s high base on global cracker turnarounds. PVC-EDC/ethylene spread was US$321/ton (+13% YoY and +6% QoQ) thanks to solid demand. After a 40% capacity debottlenecking in 4Q15, Chandra Asri (Indonesian cracker, 30% held by SCC) ramped up utilization to run at ~100% in 2Q16 (vs. 70-80% in 1Q16. The greater capacity and efficiency means higher equity income. 

 

- Cement and building materials unit (23% of 2015): This unit’s earnings will continue to soften. We expect local cement sales volume to rise 1.5% YoY in 2Q16F, backed by more government projects. Local building materials sales volume will slip, but less than the fall of 2-3% YoY seen in 1Q16. Local cement price have been stable QoQ but are down 5% YoY, while local building material prices are unchanged. We expect continued high depreciation from the startup of new cement plants in Cambodia and Indonesia in Oct-Nov 2015, as it will take six months to a year to ramp up production. 

 

- Paper unit (7% of 2015): We expect stable earnings YoY but a seasonal QoQ drop. 

 

2H16F earnings to soften HoH but up YoY. We expect 2H16F earnings to slip HoH from the additional depreciation expenses brought by the startup of a new cement plant in Myanmar in 3Q16 (+1.8mn tons, +7% to its capacity) and a 40-day ROC cracker shutdown in 4Q16. Healthy chemical spreads from better demand and supply together with the potential absence of inventory and FX loss of Bt3.6bn recorded in 3Q15 will support earnings growth YoY.