Siam Cement

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".