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Siam Cement

Growing steadily BUY

Siam Cement Plc (SCC)

- 1Q14 normalized profit to rise 7%yoy to B9.45bn

SCC’s cement and construction material business in 1Q14 has improved

slightly yoy, thanks to domestic construction projects continued from

2013 and overseas business expansion. As construction material prices

do not increase much, SCC’s 1Q14 profit from construction material

business is likely to stay close to 1Q13. Profit from petrochemical

business is expected to grow well. 1Q14 polyolefins sales volume would

be limited (despite 100% production capacity) as a result of an

inventory clearance in 4Q13 during a major shutdown of MOC factory.

However, PE and PP spreads have improved; naphtha spread has

widened by US$100/ton from 1Q13, benefiting SCC. Paper business is

expected to rebound after replacing low-margin paper pulp and printing

and writing paper with dissolving grade pulp production (used in textile

business) with higher margin since late-2013.

- To grow further, mainly from petrochemical business

Thanks to its aggressive business expansion in ASEAN countries during

the recent years, SCC’s benefit has started to grow. In the next three

years, SCC is likely benefit mostly from petrochemical business, of which

the uptrend cycle would continue until 2017. Cement business is

projected to rebound again in 2016 after three factories in Indonesia,

Myanmar and Cambodia start producing at their full capacity of 4.5

million tons/year. For paper business, SCC has formed alliance with

Nippon Paper Industries (Japan’s largest paper producer with leading

manufacturing technology). Thus, margin of SCC’s products would rise,

including low-profit printing and writing paper. SCC has B250bn

investment budget for expansion projects in next five years.

- Steady growth with 22% upside. Buy

SCC is expected to grow further as ASEAN economy recovers. FY2014

net profit is expected to grow by 7%yoy to B39,342m. We derive

FY2014 fair value (DCF) at B520, implying 22% upside with 15.86x P/E

ratio. We recommend buying


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