Siam Cement

Can't wait any longer, buy now!

Investment thesis

The information we grabbed from the post-results meeting yesterday reaffirms our bullish view about SCC's earnings outlook. We expect strong YoY earnings growth for the next four quarters, while QoQ expansion should manifest through to at least 3Q13. We don't think it is a good idea to wait for a cheaper price—to hesitate would be to risk missing this bullish train. Our BUY rating stands with a YE13 target price of Bt520.

4Q12 recap

SCC reported a 4Q12 profit of Bt6.9bn, up by 116% YoY and 8% QoQ. At first glance the result seems only 3% below our estimate and the consensus, but Cement, Chemicals and Paper performed weaker than we expected. Higher-than-modeled dividend income from Toyota and an insurance payout covered the gap. But we are not worried about the weaker-than-expected 4Q12 numbers for core businesses, as the earnings recovery is on-track. The weak numbers are now behind us.

Cement to remain a key driver this year

Domestic cement demand rose by 17% in 4Q12 and 12% in FY12. SCC expects demand to grow in the range of 7-8% in FY13, driven by greater residential, commercial and infrastructure construction. The cement price increased by Bt25/tonne QoQ to Bt1,825/tonne in 4Q12 and should grow a little further this year, pushed up by demand. We expect EBITDA margin to expand in FY13, thanks to a higher price, a lower coal cost and more domestic sales in the revenue mix.

Building Materials on super growth phase

A boom in provincial housing, particularly construction of SDHs, and new investments in Asean should sustain strong sales growth. This division reported EBITDA growth of 32% in FY12 and momentum is expected to continue into FY13. Note that the acquisition of Prime Group in Vietnam will be completed in 1Q13, boosting SCC's ceramic capacity by 50%.

Chemicals entering an uptrend

Management shares our view that the spreads of most chemical chains have bottomed out. Polyolefins spreads should continue to increase on improved buying activity after Chinese New Year and tighter supply as a result of plant turnarounds in the Middle East. PVC demand is also strong, due to greater construction activity. Despite current low demand, the Butadiene price should gradually rise in tandem with expanding car production in Asia. Only the PTA price will remain under pressure—significant new PTA capacity will start operating this year.

Paper in neutral mode

The Paper business is the only unit that has a neutral to slightly negative outlook. Packaging paper prices are expected to be flat, while raw material prices will tend to increase. Demand for printing & writing paper will tend to decline with the emergence of cheap digital reading devices.