Siam City Cement
To prosper in 2014 with continuous capacity expansion
Siam City Cement Plc (SCCC)
- Bright long-run outlook with B3bn investment budget ready
Although the government-supported mega infrastructure projects have been
delayed by the current political instability, the plans would proceed after the
general election next year as they all are essential for the country’s
development. SCCC holds a positive outlook toward the cement business in
2014, believing a cement demand to grow 5%, while increasing demand for
cement during the past year has helped increase cement selling price. In terms
of cost, SCCC has made a forward contract for 80% of its coal purchase for
using in 2014 at a 10% lower price than 2013, so the company would be able
to keep its profit margin good despite a rise in electricity fee, the main cost.
For the future growth, SCCC has set a budget of Bt3-4bn; Bt1.5bn of which will
be used for annual maintenance while the rest will be used for expanding
capacity of its ready-mixed concrete and super block factories and improving
efficiency of existing plants.
- Cement kiln maintenance shutdown to affect 4Q13 profit
As SCCC had to run its four cement kilns at their full capacity in 9M13 to
support growing demands, the maintenance shutdown has been postponed to
4Q13, which is a low season of the business. At the same time, the reopening
of the cement kiln#1 that had been closed since 2008 could proceed as
planned; the test run has just finished and a commercial run can be expected
in 2014. After the cement kiln#1 resumes, SCCC’s clinker’s production will
increase by 1.5 million tons/year. However, some of the test run expense will
be booked in 4Q13, so the gross margin might decrease significantly from the
prior quarter. Nevertheless, 5% rising domestic cement selling price since the
beginning of the year will help generate profit growth, comparing to Bt756m in
4Q12.
- Current share price has 19% upside. Buy "
With the strong business growth and continuous investment, we estimate
SCCC’s profit at Bt6,038m in FY2014 or the growth of 15%yoy. 2014 fair
value, at 18x PER, is Bt473m, implying 19% upside from the current share
price, while there will also be a dividend yield of around 4%. Buy.
