Siam Cement

Q4 2012A: Recovery confirmed in all business units BUY

Siam Cement Plc (SCC)

4Q12A net profit of Bt6.9bn, in line. SCC reported a 4Q12 net profit of Bt6.9bn,

+116% YoY and +8% QoQ, lining up with SCBS and market consensus. The improvement

YoY comes from earnings recovery from last year's low (flooded) base. The QoQ rise

comes from the seasonal dividend income and the resumption of BST (chemical) and

Phoenix (paper) plants; these were sufficient to overcome the seasonally weak sales

volume in all business units.

2H12 DPS of Bt6.5, higher than expected. SCC announced 2H12 DPS of Bt6.5 (XD on

April 2), beating our expected Bt5.5 and the market's Bt5-6, with a 56% payout ratio,

above its usual 40-50%.

Company's guidance: 1Q13: Seasonal improvement in sales volume for all units with

better run rates at BST and Phoenix plants after resuming partial operations in Oct-

Nov 2012. 2013: Chemical units will bottom out and improve on a better balance in

demand and supply. Backed by buying interest in the market amid high season and the

anticipation of price rise in tandem with oil price increase, in 1Q13 to date, HDPEnaphtha

and PP-naphtha were US$487/ton (+30% YoY and +8% YoY) and US$562/ton

(+38% YoY and +8% QoQ), with spreads for associates (MMA/BD-naphtha, PTA-PX)

relatively stable QoQ. Non-chemical units will grow both organically and nonorganically

from recent acquisitions. Cement sales on the domestic market, where

margin is higher, are expected to grow 5-10%, with lower-margin exports declining.

Cement margin should be stable, backed by better product mix and a 5-10% reduction

in coal costs that will outpace the rise in electricity/labor costs. Inorganic earnings

contribution will come from recent acquisitions, such as ready-mix concrete in

Indonesia (cement), KIA in Indonesia, Mariwasa in Philippines, Prime Group in Vietnam

(building material), and GLOBAL in Thailand (distribution). SCC notes that each Bt1

appreciation against the US$ hurts earnings by ~Bt300mn after factoring in its 50%

hedging.

Maintain BUY. Maintain BUY with end-13 SOTP PT of Bt525. We like SCC for: 1) the

expectation of 1Q13 earnings improvement from seasonality and better utilization

rates at BST/Phoenix plants; 2) strong three-year earnings growth of 25% backed by

higher volume at the non-chemical units, spread revival at the chemical unit and

inorganic growth from its new investments in ASEAN.