Upside getting limited though business still tends to shine. Downgrade to "HOLD"Siam Cement Plc (SCC)
Q4 2012 norm profit projected at B7.3bn, increasing 14% QoQ
SCC's 4Q12 profit from petrochemical business tends to improve despite
low season. According to the oil price that's likely to increase and China's
economy recovery signal, consumers have raised the level of their stock.
Moreover, BST's return of operation has saved SCC from facing loss
sharing, urging the company to have better control of supply chain system.
For the cement and construction material business, it still has benefited
from domestic growth of construction sector. Furthermore, sales of readymix
concrete in Indonesia have increased after passing Ramadan festival in
3Q12. In terms of the paper business, sales have declined along with the
low season, while the spread is quite stable. In addition, Phoenix Pulp and
Paper mill that had faced fire accident in mid-July 2012 has resumed
production once again in November. Overall, SCC's sales in 4Q12 would
make B99bn or 5% QoQ decrease; however, the gross margin would
improve to 15.2%. Combined with the dividend income from TOYOTA at
B1.5m, the norm profit would stand at B7.3bn or 14% QoQ increase.
March to invest in main business, boosting profit growth
SCC still has focused constantly on investing in the main business, for both
M&A and greenfield. From the beginning of 2011 until present, the
company has announced its investment budget at B84.7bn in total and
would use more B200bn for investment during 5 years ahead (40-45%
goes to the petrochemical business). For the company's major projects,
there are Petrochemical Complex in Vietnam, debottlenecking, and
downstream plant construction of Chandra Asri in Indonesia. The return of
investment would get clear since 2013 onward, especially projects that
SCC has made M&A like Siam Global House in Thailand and the Prime
Group which is the leading producer of ceramic tiles in Vietnam. In terms
of the plan to build new factories, most of them would be completed in
2014-2015; for examples, a packaging-paper factory in Thailand and
cement plants in Indonesia and Cambodia.
Not much upside from current share price. Downgrade to "HOLD"
According to the business strategy that aims to enhance growth in Asian
region, SCC's profit is likely to grow continuously in 5 years ahead. The
main stimuli would come from the petrochemical business that is projected
to get on uptrend once again in late-2013. Nevertheless, the share price
has increased aggressively by 36% in the past 6 months, probably much
reflecting positive expectations already. Accordingly, there is only 4%
upside from the current share price. Fair value, using DCF, stands at B445
or 15x PER. Combined with decreased dividend yield to only 3.3%, we
downgrade our recommendation from "BUY" to "HOLD".