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Siam City Cement

1Q14 profit makes new high BUY

Siam City Cement Plc (SCCC)

- 1Q14 net profit leaps 56%yoy to B1903m

SCCC’s 1Q14 net profit is reported at B1,903m. Excluding B74.6m

Fx gain, SCCC’s 1Q14 normalized profit grew by 48%yoy to

B1,828m, making the record high. Sales volume rose by 14%yoy to

B8,653m after the cement kiln #1 (1.2 million tons/year capacity)

was reopened. Though the political turmoil pressed domestic sales

slightly, it was compensated from an increase in export. Gross

margin increased to 47.2% thanks to lower cost on coal and

improvement in economies of scale. Moreover, 1Q14 SG&A/Sale

made the six-year lowest owing to good expense control. Share of

profit from LANNA was booked at B93m, slightly rising. In terms of

financial structure, end-1Q14 net gearing dropped to 0.17x. SCCC’s

- 1Q14 book value rose to B92.1.

 Political issues to press profit throughout 2014

The prolonged political turmoil and delayed government investment

projects have been affecting cement business. Some of the mega

infrastructure projects and property development projects continued

from 2013 have been completed, thus lowering sales volume. As a

result, SCCC’s need to promote export volume, which has far lower

price than domestic price, possibly pressing gross margin

throughout 2014. However, thanks to the acquisition of two super

block factories (Singhaburi and Ratchaburi, total capacity is 4.75

million sq.m/year) and its Conwood factory in Indonesia that will

start a commercial run in 2Q14, SCCC’s net profit is expected to

improve from the average of B1bn to B1.2-1.5bn in 2Q14.

 - Attractive upside and dividend yield. Buy

We project FY2014 net profit to grow by 11%yoy to B5,345m. We

derive FY2014 fair value at B418, implying 16.5% upside with 18x

P/E ratio. We expect dividend yield at 5%. We reiterate to buy.


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