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Siam Cement

1Q14F: Another strong quarter thanks to chem BUY

Siam Cement Plc (SCC)

Strong 1Q14F net profit estimated at Bt9.5bn, +8% YoY and +19% QoQ. The

improvement will be supplied by wider chemical spreads, no repeat of last quarter's

maintenance shutdown of its chemical and paper units, and seasonally higher sales

volume for all business units. Its 1Q14F will account for 24% of our full-year forecast.

Earnings will be released on April 30.

1Q14F highlights.

Of all business units, its chemical unit will show the most improvement YoY and

QoQ. Behind this is: 1) an increase in sales volume without the prior quarter's 45-

day maintenance shutdown of MOC (its second cracker); 2) wider chemical spreads

(HDPE-naphtha at US$620/ton, +19% YoY and +5% QoQ, and PP-naphtha at

US$626/ton: +8% YoY and +5% QoQ). Contribution from associates will be relatively

stable YoY and QoQ.

Its cement and buiding material units will demonstrate moderate growth YoY and

QoQ (seasonality). We estimate domestic cement sales volume growth at 4% YoY

with relatively stable cement selling prices from 4Q13 (flat QoQ but +7% YoY).

Building materials sales volume growth will be flat YoY (better ceramic sales

offsetting lower roofing product sales) in Thailand, but contribution from the

purchase of its Vietnam ceramic acquisition, Prime Group (first recorded in 2Q13),

will be higher, as production efficiency has improved and lifted utilization rate.

Earnings from paper unit will decline YoY from lower paper selling prices but

improve QoQ from higher sales volume on seasonality and the completion of a 1-

month shutdown in 4Q13 to debottleneck the paperboard line in Kanchanaburi.

Firm 2Q14F earnings. Despite heading into low season, its chemical spreads still

show a positive trend so far in 2Q14: HDPE-naphtha: +10% YoY and +8% QoQ and PPnaphtha:

+2% YoY but -2% QoQ. While sales volume in all business units will slip QoQ

from seasonality (but still grow YoY), this will be offset by the seasonal dividend

income from related companies, chiefly i.e. Toyota (Thailand) Co Ltd.

Maintain BUY with a 12-month SOTP PT of Bt540. Its stronger 1Q14F and firm

2Q14F will be ST catalysts. Longer term, SCC's earnings will continue to climb to new

highs, with a 3-year earnings growth of 15% through 2016, brought by wider chemical

spreads. The company believes chemicals are in an upcycle from a more favorable

demand/supply picture through 2017. Also giving support is higher non-chemical

volume and inorganic growth from new investments in ASEAN. Its valuation is

undemanding, trading at 13x 2014 PE (+0.5SD. over its 10-year PE of 11x).


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