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Siam Cement

4Q13A: Beat estimates thanks to chemical unit

Siam Cement Plc (SCC)

- 4Q13A. SCC reported 4Q13 net profit of Bt8.2bn, +19% YoY but -16% QoQ. Excluding

~Bt600mn extra gain from the sale of investment gives a normalized profit of Bt7.6bn,

+10% YoY and -6% QoQ. Profits were 28% above our estimate and 19% above consensus,

mainly on the extra item and the stronger performance than anticipated at the

chemical unit. The YoY improvement came from wider spreads at the chemical unit

and higher volume and margin at the cement and building materials units. The QoQ

decline came from lower sales volume in all business units from seasonality and the

45-day shutdown of MOC and a special 1-month bonus expense in celebration of SCG's

100th anniversary, together overwhelming seasonal dividend income. SCC announced a

2H13 DPS of Bt7, XD on 1 Apr 2014.

Bullish on chemical outlook. SCC expects wider chemical spread in 1Q14F off the

normal buying season and lower supply from regional cracker turnarounds. In 1Q14TD,

PE/PP-naphtha spreads were US$639/ton (+23% YoY and +8% QoQ) and US$629/ton

(+8% YoY and +5% QoQ). With the additional supply lagging demand, spreads should

improve steadily through 2016-17. Sales volume in 1Q14F will improve QoQ without the

45-day maintenance shutdown for MOC in 4Q13.

More cautious on non-chemical outlook. SCC reports that local cement sales

volume rose 2% YoY in the first three weeks of Jan 2014 due to weaker market

sentiment. In 2014F, SCC expects domestic cement sales volume growth to decelerate

to 2-5percent from 7% in 2013 but does not expect the contraction seen in 2007-09. For the

building materials unit, in 2014F SCC will derive inorganic growth from the full year of

consolidation of the Vietnam ceramic acquisition, Prime Group in 2Q13 and a higher

stake in the sanitaryware and fittings business since 3Q13. For the paper unit,

contribution will improve QoQ after the paperboard line in Kanchanaburi reopens after

a 1-month maintenance shutdown for debottlenecking in 4Q13.

Benefit from weak THB. As a net exporter, SCC's earnings will rise Bt1.2bn (before

hedging) or Bt600mn (after hedging at 50% now) from each fall of Bt1 to the US$. To

leverage off the weak baht and solid demand at its export destinations (80% in Asia),

SCC is considering increasing export sales volume at all business units.

Maintain BUY with SOTP PT at Bt540. SCC's profits have now beat estimates four

quarters in a row, largely because of wider chemical spreads than anticipated. The

healthier chemical spreads, high season for all business units and the weak baht will be

positive catalysts for SCC in 1Q14F. Valuation-wise, SCC is trading at 12x 2014 PE

(+0.25SD. over its 10-year PE at 11x), undemanding against its EPS growth of 16% in

2014-16, brought by wider chemical spreads, higher non-chemical volume and

inorganic growth from new investments in ASEAN.

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